Chapter 1 and 2 Vocab

Question 1

Opportunity Costs

Answer 1

loss of potential gain for something else

Question 2

Comparative Advantage

Answer 2

the ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity

Question 3

Marginal Analysis

Answer 3

an examination of the additional benefits of an activity compared to the additional costs incurred by that same activity.

Question 4

Marginal Costs

Answer 4

the cost added by producing one additional unit of a product or service
-not understanding leads to reject advantageous possibilities

Question 5

Externalities

Answer 5

costs or benefits to an unrelated third-party that arises as an effect of other parties activities

Question 6

Abstraction

Answer 6

ignoring many details so as to focus on the most important elements of a problem

Question 7

Correlation

Answer 7

two variables that tend to up or down together
-does not prove that either variable causes one another (does not imply causation)

Question 8

Economic Model

Answer 8

simplified small scale version of an aspect of the economy
Opportunity cost is the correct measure of cost

Question 9

Theory

Answer 9

try to explain economic phenomena, to interpret why and how the economy behaves and what is the best to solution

Question 10

Behavioral Economics

Answer 10

combines elements of economics and psychology to understand how and why people behave the way they do in the real world

Question 11

“At the Margin”

Answer 11

the contribution of each individual unit to the total product at the time that the unit is applied so that every unit can be thought of as having its own ‘marginal contribution’

Question 12

Economics

Answer 12

The social science concerned with the way society chooses to employ scarce resources which have alternative uses to produce and distribute goods and services from present and future consumption

Question 13

Positive Economics

Answer 13

deals with what “is”; descriptive; implies a testable hypothesis
Its a statement that can be tested
Ex. saying how tall you are

Question 14

Normative Economics

Answer 14

Deals with what should be; prescriptive; implies value, judgement
belief/opinion
Root norm=value
Ex: “We should cancel student debt” or “its freezing out”

Question 15

Inputs

Answer 15

any resources used to create goods and services

Question 16

Factors of Production

Answer 16

broad categories - land, labor, capital, natural resources, entrepreneurship - into which we classify the economy is different productive inputs

Question 17

Outputs

Answer 17

of a firm or economy are goods and services it produces

Question 18

Freemarket

Answer 18

where individuals and businesses voluntarily buy and sell things

Question 19

Gross Domestic Product(GDP)

Answer 19

money values of all final goods and services produced in the domestic economy and sold on organized markets during a specified period of time, usually a year

values of final goods and services produced and sold on organized markets during a specific time period

Question 20

Closed Economy

Answer 20

Relatively closed economy exports and imports constitute a small fraction of GDP

Question 21

Open Economy

Answer 21

An economy that trades with other nations in goods and services and perhaps also trades in financial assets. Relatively open is its exports and imports constitute a large share of its GDP

Question 22

Recession

Answer 22

a period of time during which the total output of the economy falls

Question 23

Markets

Answer 23

a means by which the exchange of goods and services takes place as a result of buyers and sellers being in contact with one another, either directly or through mediating agents or institutions

Question 24

Transfer Payments

Answer 24

sums of money that the government gives certain individuals as outright grants rather than as payments for services rendered to employers
Ex. Social Security; unemployment benefits

Question 25

Progressive Taxation

Answer 25

this is a tax where the average tax rate paid by an individual rises as income rises

Question 26

Mixed Economies

Answer 26

Economy with some public influence over the workings of free market; Also some public ownership mixed in with private property

Question 27

Macroeconomics

Answer 27

deals with issues such as unemployment. Inflation, growth, GDP…

Question 28

Microeconomics

Answer 28

deals with specific units in the economy - individuals, households, firms…

Question 29

Distribution

Answer 29

who gets what we produce

Question 30

Consumer Sovereignty

Answer 30

we (as the consumer) decide what we want and what happens to the economy through our choices; ‘we are king’ ‘consumer votes’