Vocabulary: Unit Two Flashcards
Demand
The quantity of a good that consumers are willing and able to purchase at various prices during a given period; the relationship between price and quantity demanded
Law of Demand
The inverse relationship between price and quantity demanded; as price rises, quantity demanded falls; as price falls, quantity demanded rises
Net benefits
Total benefits minus total costs
Sunk costs
A cost that can’t be avoided regardless of a current or future
Opportunity cost
The value of the next best alternative; the cost of a current decision
Positive economic analysis
Describes and predicts changes in an economy
Normative economic analysis
Uses positive analysis to make recommendations for how things ought to be
Production possibility frontier
PPF; represents all the possible combinations of maximum production, given available resources
Law of increasing opportunity costs
The opportunity cost of producing additional units increases as more units are produced
Absolute advantage
The ability to produce a good or service using fewer resources than other producers; measures cost in terms of resources used in production
Comparative advantage
The ability to produce a good or service with a lower opportunity cost than anyone else; measures costs in terms of alternative production given up
Scientific method
Making a hypothesis about a relationship and testing the hypothesis
Theory
A hypothesis that hasn’t been rejected after being tested
Law
Theory that is widely accepted as true
Ceteris paribus
All else equal
Fallacy of composition
Assuming that something true for a part also applies to the sum of the parts
Association implies causation
Assuming that a statistical association between two events that one one causes the other
Sample selection bias
Predicting behavior for an entire population from statistical analysis of a subset of the population
Faulty ceteris paribus
Incorrectly assuming factors constant that cannot logically be held constant
Unaccounted factors
Assuming that an association between two events will continue in the future without identifying how the association depends on the stability of other factors
Model
A simplification of a real world concept so it can be studied; presents key characteristics and allow for accurate predictions
