Chapter 1 - The Scope and Method of Economics Flashcards Preview

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Flashcards in Chapter 1 - The Scope and Method of Economics Deck (29):
1

Economics

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

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Opportunity Cost

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

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Scarce

Limited

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Marginalism

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

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Sunk Costs

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

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Efficient Market

A market in which profit opportunities are eliminated almost instantaneously.

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Industrial Revolution

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.

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Microeconomics

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

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Macroeconomics

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

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Positive economics

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.

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Normative economics

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.

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Descriptive Economics

The compilation of data that describe phenomena and facts

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Economic Theory

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

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Model

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

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Variable

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

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Ockham’s razor

The principle that irrelevant detail should be cut away.

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ceteris paribus, or all else equal

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

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Post hoc, ergo propter hoc

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.

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fallacy of composition

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

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empirical economics

The collection and use of data to test economic theories.

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Efficieny

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

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equity

Fairness.

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Economic Growth

An increase in the total output of an economy.

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Stability

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

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Cartesian coordinate system

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

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origin

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

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time series graph

A graph illustrating how a variable changes over time.

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X-axis

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

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Y-axis

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