Review 1 The Economic Approach Flashcards
Microeconomics
The branch of economics that focuses on how human behavior affect the conduct of affairs within narrowly defined units, such as individual households or business firms.
Macroeconomics
The branch of economics that focuses on how human behavior affects the outcomes in highly aggregated markets, such as the markets for labor or consumer products.
capital
Human-made resources (such as tools, equipment, and structures) used to produce other goods and services. They enhance our ability to produce in the future.
capitalism
An economic system in which productive resources are owned privately and goods and resources are allocated through market price.
ceteris paribus
A Latin term meaning “other thing constant” that is used when the effect of one change is being described, recognizing that if other things changed, they also could affect the result. Economists often describe the effects of one change, knowing that in the real world, other things might change and also exert an effect.
collective decision-making
The use of the political process (voting, taxes, government spending, regulation, political bargaining, lobbying, and so on) to make decisions and allocate resources. In a democratic setting, the votes of citizens and their representatives will determine the actions undertaken.
fallacy of composition
Erroneous view that what is true for the individual (or part) will also be true for the group (or the whole)
marginal
Term used to describe the effects of a change in the current situation. For example, a producer’s marginal cost is the cost of producing an additional unit of a product, given the producer’s current facility and production rate.
middlemen
People who buy and sell goods or services or arrange trades. A middleman reduces transaction costs.
normative economics
Judgements about “what ought to be” in economic matters. Normative economic views cannot be proved false because they are based on value judgments.
opportunity cost
The highest valued alternative that must be sacrificed as a result of choosing an option.
positive economics
The scientific study of “what is” among economic relationships.
private-property right
Property rights that are exclusively held by an owner and protected against invasion by others. Private property can be transferred, sold, or mortgaged at the owner’s discretion.
rationing
Allocating a limited supply of a good or resource among people who would like to have more of it. When price performs the rationing function, the good or resource is allocated to those willing to give up the most “other things” in order to get it.
resources
An input used to produce economic goods. Land, labor, skills, natural resources, and human-made tools and equipment provide examples. Throughout history, people have struggled to transform available, but limited, resources into things they would like to have–economic goods.
