Chapter 2- Solving The EP Flashcards
Law of Substitution
A test of efficiency with more than one objective that says that moving closer to one objective is possible only by moving farther away from at least one other objective
Efficiency
A criterion for judging the solution to an economic problem that refers to making the choices that best meet the objectives; if the ec. problem has a single objective, then efficiency means coming as close to the objective as possible; if the ec. problem has more than one objective, then efficiency means that’s the Law of Substitution holds. A solution is efficient if moving closer to one objective requires moving farther away from at least one other objective.
End-Results Equity
A criterion for judging the solution to an economic problem that asks whether economic outcomes are fair
Consumer sovereignty
The principle that individuals are best able to judge their own self-interests
Horizontal equity
A principle of end-results equity that requires that equals receive equal treatment
Process equity
A criterion for judging economic activity that asks whether the rules under which the economy operates are fair
Equality of opportunity
A principle of process equity that requires that individuals have equal access to whatever economic opportunities they are willing and able to pursue so that they can develop their economic potential to the fullest
Controlled experiment
The scientific method of analysis for determining cause-and-effect relationships that studies the effects of changing one element in an environment at a time while holding constant all other elements in the environment
Model
A simplified description of some real world situation that isolates one particular aspect of the situation and studies the effects on that one aspect as different elements are changed one at a time
Margin
Refers to the effects of a small change in an economic variable
Normative economic analysis
The study of what ought to be; attempts to determine appropriate norms or criteria for judging the results of economic behavior and activity
Positive economic analysis
The study of what is; attempts to determine what actually exists in the real world and to describe the consequences of economic decisions
Microeconomics
The study of the economy “in the small”; analyzes the economic problem of individual economic agents and the exchanges between them
Macroeconomics
The study of the economy “in the large”; analyzes the overall performance of the economy
Long-run economic growth
A continuing process in which the economy is able to produce ever-increasing amounts of goods and services year after year
