Chapter 1 - The Scope and Method of Economics

Question 1

Economics

Answer 1

The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.

Question 2

Opportunity Cost

Answer 2

The best alternative that we forgo, or give up, when we make a choice or a decision.

Question 3

Scarce

Answer 3

Limited

Question 4

Marginalism

Answer 4

The process of analyzing the additional or incremental costs or benefits arising from a choice or decision.

Question 5

Sunk Costs

Answer 5

Costs that cannot be avoided because they have already been incurred.

Question 6

Efficient Market

Answer 6

A market in which profit opportunities are eliminated almost instantaneously.

Question 7

Industrial Revolution

Answer 7

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.

Question 8

Microeconomics

Answer 8

The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units—that is, firms and households.

Question 9

Macroeconomics

Answer 9

The branch of economics that examines the economic behavior of aggregates—income, employment, output, and so on—on a national scale.

Question 10

Positive economics

Answer 10

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.

Question 11

Normative economics

Answer 11

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.

Question 12

Descriptive Economics

Answer 12

The compilation of data that describe phenomena and facts

Question 13

Economic Theory

Answer 13

A statement or set of related statements about cause and effect, action and reaction.

Question 14

Model

Answer 14

A formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables.

Question 15

Variable

Answer 15

A measure that can change from time to time or from observation to observation.

Question 16

Ockham’s razor

Answer 16

The principle that irrelevant detail should be cut away.

Question 17

ceteris paribus, or all else equal

Answer 17

A device used to analyze the relationship between two variables while the values of other variables are held unchanged.

Question 18

Post hoc, ergo propter hoc

Answer 18

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.

Question 19

fallacy of composition

Answer 19

The erroneous belief that what is true for a part is necessarily true for the whole.

Question 20

empirical economics

Answer 20

The collection and use of data to test economic theories.

Question 21

Efficieny

Answer 21

In economics, allocative efficiency. An efficient economy is one that produces what people want at the least possible cost.

Question 22

equity

Answer 22

Fairness.

Question 23

Economic Growth

Answer 23

An increase in the total output of an economy.

Question 24

Stability

Answer 24

A condition in which national output is growing steadily, with low inflation and full employment of resources.

Question 25

Cartesian coordinate system

Answer 25

A common method of graphing two variables that makes use of two perpendicular lines against which the variables are plotted.

Question 26

origin

Answer 26

On a Cartesian coordinate system, the point at which the horizontal and vertical axes intersect.

Question 27

time series graph

Answer 27

A graph illustrating how a variable changes over time.

Question 28

X-axis

Answer 28

On a Cartesian coordinate system, the horizontal line against which a variable is plotted.

Question 29

Y-axis

Answer 29

On a Cartesian coordinate system, the vertical line against which a variable is plotted.