Chapter 1 Flashcards
Economics
The study of how individuals and societies choose the scarce resources that nature and previous generations have provided.
Opportunity Cost
The best alternative we forgo when we make a choice or decision.
Marginalism
The process of analyzing the additional or incremental costs or benefits arising from a choice or decision.
Efficient Market
A market in which profit opportunities are eliminated almost instantaneously.
microeconomics
The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units (firms & households).
macroeconomics
The branch of economics that examines the economic behavior of aggregates - income, employment, output etc - on a national scale.
positive economics
An approach to economics that seeks to understand behavior and the operations of systems without making judgements. it describes what exists and how it works.
normative economics (aka policy economics)
An approach to economics that analyzes the outcomes of economic behavior, evaluates them, and prescribes courses of action.
model
A formal representation of a theory, usually a mathematical statement of a presumed relationship between two or more variables.
variable
A measure that can change from time to time or from observation to observation.
Ockham’s razor
The principle that irrelevant detail should be cut away.
Ceteris Paribus (all else equal)
A device used to analyze the relationship between two variables while the values of other variables are held unchanged.
post hoc, ergo proper hoc
Literally, “after this (in time), the fore because of this.” A common error made in thinking about causation: If Event A happens before Event B, it’s not necessarily true that A caused B.
fallacy of composition
The erroneous belief that what is true for the part is necessarily true for the whole.
empirical economics
The collection and use of data to test economic theories.
