Chapter 1 Flashcards
Economic Perspective
A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions
A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions
Economic Perspective
Economics
The social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity
Opportunity Costs
The amount of other products that must be forgone or sacrificed to produce a unit of a given product
Scarcity
Utility
The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains
Marginal Analysis
The comparison of marginal benefits and marginal costs for decision making
Marginal Analysis
The comparison of marginal benefits and marginal costs for decision making
Resources
The inputs, or factors of production, used to produce the goods and services that people want consisting of labor, capital, natural resources, and entrepreneurial ability
A widely accepted generalization about the economic behavior of individuals or institutions
Economic Principle
other-things-equal assumption (ceteris paribus)
The assumption that factors other than those being considered are held constant
Marginal
Incremental, additional, or extra; used to describe a change in an economic variable
Circular-Flow Model
A diagram that traces the flow of resources, product, income, and revenue among economic decision makers
Rational Self-Interest
Each individual tries to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit
Economic Fluctuations (Business Cycles)
The rise and fall of economic activity relative to the long-term growth trend of the economy
Economic Theory (Model)
A simplification of reality used to make predictions about cause and effect in the real world
Variable
A measure, such as price or quantity, that can take on different values at different variables
Other-things-constant assumption (ceteris paribus)
The assumption, when focusing on the relation among key economics variables that other variables remain unchanged
Behavioral Assumption
An assumption that describes the expected behavior of economic decision makers; what motivates them
Hypothesis
A theory about how key variables related to each other
Positive Economic Statement
A statement that can be proved or disproved by reference to facts
Normative Economic Statement
A statement that reflects on opinion, which cannot be proved or disproved by reference to facts
Association-Causation Fallacy
The incorrect idea that if two variables are associated in time, one must necessarily cause the other
Fallacy of Composition
The incorrect belief that what is true for individual, or part, must necessitate be true for the group, or the whole
