The Scope and Method of Economics CH.1

Economics

The study of how individuals and societies choose to use scarce resources.

Opportunity Cost

The best alternative that we forgo or give up when making a decision.

Scarce

Limited in supply.

Marginalism

The process of analyzing additional or incremental costs and benefits from a choice.

Efficient Market

A market in which profit opportunities are eliminated almost instantaneously.

Microeconomics

Examines individual industries and the behavior of individual decision-making units like firms and households.

Macroeconomics

Examines the economic behavior of aggregates on a national scale.

Positive Economics

Seeks to understand behavior and systems without making value judgments, describing what exists.

Normative Economics

Analyzes outcomes, evaluates them as good or bad, and prescribes policy courses.

Model

A formal statement of a presumed relationship between two or more variables.

Variable

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

Ockham's Razor

The principle that irrelevant detail should be cut away to choose simpler theories.

Ceteris Paribus

A device used to analyze the relationship between two variables while holding others unchanged.

Post hoc, ergo propter hoc

The common error of assuming that because Event A preceded Event B, A caused B.

Empirical Economics

The collection and use of data to test economic theories.

Efficiency

Producing what people want at the least possible cost.

Equity

Fairness in economic outcomes.

Economic Growth

An increase in the total output of an economy.

Stability

National output growing steadily with low inflation and full employment.

Industrial Revolution

Late 18th and early 19th-century period giving rise to modern factories and urban population shifts.