Chapter 1 Vocab

Question 1

Art of economics

Answer 1

Application of the knowledge learned in positive economics to achieve the goals one has determined in normative economics.

Question 2

Economics decisions rule

Answer 2

If the marginal benefits of doing something exceed marginal cost, do it. If MC > MB, don’t do it.

Question 3

Economic forces

Answer 3

The necessary reactions to scarcity

Question 4

Economic model

Answer 4

Framework that places the generalized insights of the theory in a more specific contextual setting.

Question 5

Economic policies

Answer 5

Actions (or inaction) taken by government to influence economic actions.

Question 6

Economic principle

Answer 6

Commonly held economic insight stated as a law or principle.

Question 7

Economics

Answer 7

Study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society.

Question 8

Efficiency

Answer 8

Achieving a goal as cheaply as possible.

Question 9

Experimental economics

Answer 9

A branch of economics that studies the economy through controlled experiments. (Lab, computer, and field)

Question 10

Impartial spectator tool

Answer 10

Each person places themselves in the position of a third-person examiner and judges a situation from everyone’s perspective, not just their own.

Question 11

Implicit costs

Answer 11

costs associated with a decision that often aren’t included in normal accounting costs.

Question 12

Invisible hand

Answer 12

Price mechanism, the rise and fall of prices that guide our actions in a market.

Question 13

Invisible hand theorem

Answer 13

A market economy, through the price mechanism, will tend to allocate resources efficiently.

Question 14

Macroeconomics

Answer 14

Study of the economy as a whole.

Question 15

Marginal benefit

Answer 15

Additional benefit above what you’ve already derived.

Question 16

Marginal cost

Answer 16

Additional cost to you over and above the costs you have already incurred. (Does not include sunk costs).

Question 17

Market force

Answer 17

Economic force that is given relatively free rein by society to work through the market.

Question 18

microeconomics

Answer 18

Study of individual choice, and how that choice is influenced by economic forces.

Question 19

normative economics

Answer 19

Study of what the goals of the economy should be.

Question 20

opportunity cost

Answer 20

Benefit that you might have gained from choosing the next-best alternative.

Question 21

political forces

Answer 21

Legal directives that direct individuals’ actions.

Question 22

positive economics

Answer 22

Study of what is, and how the economy works.

Question 23

percepts

Answer 23

Policy rules that conclude that a particular course of action is preferable.

Question 24

scarcity

Answer 24

The goods available are too few to satisfy individuals’ desires.

Question 25

social forces

Answer 25

Forces that guide individual actions even though those actions may not be in an individual's selfish interest.

Question 26

sunk cost

Answer 26

Costs that have already been incurred and cannot be recovered.

Question 27

theorems

Answer 27

Propositions that are logically true based on the assumptions in a model.