Chapter 1 Flashcards
Economics
The study of how people allocate their limited resources to satisfy their unlimited wants
Incentives
Rewards for engaging in a particular activity
Resources
Things used to produce other things to satisfy people’s wants
Wants
What people would buy if their incomes were unlimited
Microeconomics
The study of decision making undertaken by individuals (or households) and by firms
Macroeconomics
Th study of the behavior of the economy as a whole, including such economy wide phenomena as changes in unemployment, the general price level, and national income
Aggregates
Total amounts or quantities;aggregate demand, for example, is total planned expenditures throughout a nation
Rationality Assumption
The assumption that people do not intentionally make decisions that would leave them worse off
Models or Theories
Simplifies representations of the real world used as the basis for predictions or explanations
Ceteris paribus assumption
The assumption that nothing changes except the factor or factors being studied
Empirical
Relying on real-world data in evaluating the usefulness of a model
Behavioral economics
An approach to the study of consumer behavior that emphasizes psychological limitations and complications that potentially interfere with rational decision making
Bounded rationality
The hypothesis that people are nearly, but not fully, rational, so that they cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them
Positive economics
Analysis that is strictly limited to making either purely descriptive statements or scientific predictions; for example, “if A, then B.” A statement of what is.
Normative economics
Analysis involving value judgements about economic policies; relates to whether things are good or bad. A statement of what ought to be.
