Chapter 1 Flashcards
Incentives
Reward for engaging in a particular activity
Economics
The study of how people allocate their limited resources to satisfy their unlimited wants. Also the study of how people make choices
Wants
What people would buy with unlimited income
Microeconomics
The study of decision making undertaken by individuals, households and firms. Small parts of the economy.
Macroeconomics
The study of the behaviour of the economy as a whole. Deals with aggregates (totals) and economy wide phenomena.
Economic System
The institutional mechanism that determines the way scarce resources are utilized to satisfy human wants
Central Planning
Centralized command and control. Authority that makes all economic decisions (government)
Market System
Decentralized decision making process, in which prices are terms or signals under which people agree to make exchanges.
How do economists assume that individuals act?
Motivated by self interest and respond predictably for opportunities
Rationality Assumption
The assumption that people do not intentionally make decisions that would leave them worse off.
Ceteris Paribus Assumption
Nothing changes except the factors being studied. “Other things constant and other things equal.
Economic models predict what?
Models are of behaviour, not thought processes. Economic models predict how people react, not how they think.
Behavioural Economics
The study of consumer behaviour. Emphasizes psychological limitations and complications that may interfere with rational decision making.
Bounded Rationality
Hypothesis that people are not fully rational. Rules of thumb to sort alternatives- humans cannot examine every choice available to them.
Positive Economics
Statement of what is. Descriptive statements or scientific predictions.
Normative Economics
Statement of what ought to be. Analysis involving value judgements; relates to whether things are good or bad.
