Chapter 1 - The Scope and Method of Economics Flashcards
Economics
The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.
Opportunity Cost
The best alternative that we forgo, or give up, when we make a choice or a decision.
Scarce
Limited
Marginalism
The process of analyzing the additional or incremental costs or benefits arising from a choice or decision.
Sunk Costs
Costs that cannot be avoided because they have already been incurred.
Efficient Market
A market in which profit opportunities are eliminated almost instantaneously.
Industrial Revolution
The period in England during the late eighteenth and early nineteenth centuries in which new manufacturing technologies and improved transportation gave rise to the modern factory system and a massive movement of the population from the countryside to the cities.
Microeconomics
The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units—that is, firms and households.
Macroeconomics
The branch of economics that examines the economic behavior of aggregates—income, employment, output, and so on—on a national scale.
Positive economics
An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works.
Normative economics
An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics.
Descriptive Economics
The compilation of data that describe phenomena and facts
Economic Theory
A statement or set of related statements about cause and effect, action and reaction.
Model
A formal statement 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, or 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 propter hoc
Literally, “after this (in time), therefore because of this.” A common error made in thinking about causation: If Event A happens before Event B, it is not necessarily true that A caused B.
fallacy of composition
The erroneous belief that what is true for a part is necessarily true for the whole.
empirical economics
The collection and use of data to test economic theories.
Efficieny
In economics, allocative efficiency. An efficient economy is one that produces what people want at the least possible cost.
equity
Fairness.
Economic Growth
An increase in the total output of an economy.
Stability
A condition in which national output is growing steadily, with low inflation and full employment of resources.
Cartesian coordinate system
A common method of graphing two variables that makes use of two perpendicular lines against which the variables are plotted.
origin
On a Cartesian coordinate system, the point at which the horizontal and vertical axes intersect.
time series graph
A graph illustrating how a variable changes over time.
X-axis
On a Cartesian coordinate system, the horizontal line against which a variable is plotted.
Y-axis
On a Cartesian coordinate system, the vertical line against which a variable is plotted.
