Chapter 1 Flashcards
Economics
The study of how people allocate their limited resources to satisfy their unlimited wants.
Resources
Things used to produce goods and services 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
The 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
Economic System
A society’s institutional mechanism for determining the way in which scarce resources are used to satisfy human desires.
The Three Basic Economic Questions
- What and how much will be produced?
- How will items be produced?
- For whom will items be produced?
Rationality Assumption
The assumption that people do not intentionally make decisions that would leave them worse off.
Models or Theories
Simplified 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.
