| A | B |
|---|
| Scarcity | the limited nature of society's resources |
| Positive Statement | claims that attempt to prescribe the world as it is |
| Normative Statement | claims that attempt to prescribe how the world should be |
| Fallacy of Composition | assumes that what is true for one part also applies to the sum of the parts |
| Association implies Causation | assumes that a statistical association between two events implies that one causes the other |
| Sample Selection Bias | predicts behavior for an entire population from the statistical analysis of a subset of the population that is not representative of the entire population |
| Faulty Ceteris Paribus | assumes factors are constant that cannot logically be held constant |
| Unaccounted Factors | Assumes that an association between two events will continue in the future, without identifying how the association depends on the stability of other factors. |
| Broken Window Fallacy | an argument that disregards the unintended consequences of an event |
| Economics | the study of how society manages its scarce resources |
| Microeconomics | the study of how households and firms make decisions and how they interact in markets |
| Macroeconomics | the study of economy wide phenomena, including inflation, unemployment, and economic growth. |
| Trade-offs | scarce resources imply that everyone is constantly faced with difficult choices that involve benefits and costs |
| Efficiency | the property of society getting the most it can from its scarce resources |
| Equity | the property of distributing economic prosperity fairly among the members of society |
| Opportunity Cost | whatever must be given up to obtain some item |
| Marginal Analysis | making decisions based upon weighing the marginal benefits and costs of that action. The rational decision make chooses an action of MB>/MC |
| Incentives | something that induces a person to act. |
| PPF | different quantities of goods that an economy can produce with a given amount of scarce resources. Graphically, the trade-off between the production of two goods is protrayed as a PPF |
| Productive Efficiency | production of maximum output for a given level of technology and resources. All points on the PPF. |
| Allocative Efficiency | production of the combination of goods and services that provides the most net benefit to society. The optimal quantity of a good is achieved when MB=MC of the net unit |
| Law of Increasing Costs | the more of a good that is produced, the greater is its opportunity cost |
| Economic Growth | occurs when an economy's production possibilities increase. This can be a result of more resources, better resources, or improvements in technology |
| Explicit Costs | input costs that require an outlay of money by the firm |
| Implicit Costs | input costs that do not require an outlay of money by the firm |
| Factors of Production | these are commonly grouped into four categories of labor, physical capital, land or natural resources, and entrepreneurial ability |
| Basic Economic Questions | What, how and for whom to produce |
| Market Economy | an economy that allocates resources through decentralized decisions of many firms and households as they interact in markets for goods and services |
| Invisible Hand | is essentially a natural phenomenon that guides free markets and capitalism through competition for scarce resources. |
| Command Economy | is an economic system in which society controls the factorsof production and makes all decisions about their use and about the distribution of income |
| Traditional Economy | is an economic system in which resources are allocated by inheritance, and which has a strong social network and is based on primitive methods and tools |
| Market Failure | a situation in which a market left on its own fails to allocate resources efficiently |
| Market Power | The ability of a single economic actor to have a substantial influence on market prices |
| Externality | the impact of one person's actions on the well being of a bystander |
| Private Property | designates those things commonly recognized as the entities in respect of which a person or group has exclusive rights |
| Mixed Economy | some combination of market and command economies |
| Absolute Advantage | the ability to produce a good using fewer inputs than another producer |
| Comparative Advantage | the ability to produce a good at a lower opportunity cost than another producer |
| Specialization | when firms focuses their resources on production of goods for which they have comparative advantage |
| Voluntary Trade | trade allows for specialization in what they do best and to enjoy a greater variety of goods and services |
| Model | A simplified representation of a real situation used to better understand real-life situations. |
| Capital | the resource that includes equipment, machinery, buildings, and tools. |
| Marginal Benefit | the additional benefit received from the consumption of the next unit of a good or service. |
| Marginal Cost | the additional cost of producing one more unit of output. |
| Barter | the act of exchanging goods and services for other goods and services |
| Economy | A system for coordinating society's productive activities. |
| All else Equal | The assumption that all other variables are held constant so we can predict how a change in one variable effects a second. |
