Chapter 1 Flashcards
Economics
The study of how people make decisions with scare resources and their impacts on the individual and society as a whole
Scarcity
A resource with finite limited amounts
Ex: Time
Microeconomics
Branch of Economics that studies how individuals make decisions and their impacts on individuals
Macroeconomics
Branch of Economics that studies the functions and performance of a society’s economy as a whole
Positive Statement
A factual statement that describes how the world actually is or how the world actually functions
Normative Statement
A claim judges how to world is or functions and attempts to propose how it should be.
Fallacy of Composition
What is true for one is true for all; the assumption that association IS causation.
Rational Decision Makers
Someone with well-defined goals, who takes active steps to reach them.
Total Benefits
The gains a person gets from an action or outcome
Total Costs
The burdens that a person incurs from an action or outcome
Total Economic Surplus
Difference between total benefits and costs
Surplus = Benefits - Costs
Cost-Benefit Principle
a rational decision maker will only participate in an activity IF AND ONLY IF it results in a Total Economic Surplus
Incentive Principle
If the marginal benefits of an activity increases that so will rational person participation
If marginal Costs of an activity increase that rational person participation will decrease
What is the main goal of “Government policies”
To alter costs and benefits and in doing so affect the behavior of the people.
Self-Interested Indicidual
Someone who assess costs and benefits before making a decision
- by definition will put more weight on self priorities than those of others
- cares more about there own well-being than that of others
- NOT necessarily selfish*
