Introduction to Economic Jargon – Key Concepts

Question-and-Answer flashcards summarizing micro vs. macro distinctions, positive vs. normative statements, scarcity, assumptions, ceteris paribus, and the circular-flow model.

What does microeconomics study?

How individuals and companies make decisions and interact with one another in markets.

What does macroeconomics study?

Issues that affect the economy as a whole, such as inflation, unemployment, economic growth, and currency exchange rates.

Is a rise in government spending that eventually causes tax rates to increase a micro or macro issue?

Macroeconomic issue.

When a tax on petrol is introduced, petrol consumption should decrease. Is this micro or macro?

Microeconomic issue—concerns behavior in a specific market (petrol).

What happens to the price of durians when there is a glut in supply, and is it micro or macro?

The price falls; it is a microeconomic issue.

What is a positive economic statement?

An objective, fact-based claim that can be tested and proved or disproved.

What is a normative economic statement?

A subjective, value-based opinion that cannot be tested or proven.

Is the claim “Crude oil price is rising” positive or normative?

Positive statement.

Is the statement “We should develop more sources of renewable energy” positive or normative?

Normative statement.

According to Thomas Sowell, what is the first lesson of economics?

Scarcity—there is never enough of anything to satisfy all who want it.

Why do economists use assumptions in their models?

To simplify complex reality and focus on particular issues, making them easier to understand.

What does ceteris paribus mean?

"Other things being equal"—holding all else constant.

In the circular-flow model, what do households supply to firms in factor markets?

Factors of production (labor, land, capital) in exchange for wages, rent, and profit.

In the circular-flow model, what do firms supply to households in goods and services markets?

Goods and services that households buy.

Give an example of a positive statement from the lecture.

“An increase in unemployment benefits increases unemployment.”