Principles of Economics: The Scope and Method of Economics

Comprehensive practice flashcards covering Chapter 1 of Principles of Economics (13th Edition), including definitions, fundamental concepts, fields of study, modeling methods, and policy criteria.

How is economics defined?

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

What is considered the key word in the definition of economics?

Choose.

What broad type of science is economics?

A behavioral, or social, science.

What are the three fundamental concepts that form the economic way of thinking?

Opportunity cost, marginalism, and efficient markets.

What is opportunity cost?

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

How does economics define the term 'scarce'?

Limited.

What is marginalism?

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

What is an efficient market?

A market in which profit opportunities are eliminated almost instantaneously.

What is 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.

What is macroeconomics?

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

In the analogy comparing economics to nature, which branch examines the 'trees' and which examines the 'forest'?

Microeconomics examines the individual 'trees' (the household, firm, or industry), while macroeconomics analyzes the aggregate 'forest' (the whole).

How do production concerns differ between microeconomics and macroeconomics?

Microeconomics focuses on production/output in individual industries and businesses (e.g., steel, office space, cars), whereas macroeconomics focuses on national production/output, total industrial output, gross domestic product, and growth of output.

How do price concerns differ between microeconomics and macroeconomics?

Microeconomics examines prices of individual goods and services (e.g., medical care, gasoline, food, apartment rents), whereas macroeconomics examines aggregate price levels (consumer prices, producer prices, rate of inflation).

How do income concerns differ between microeconomics and macroeconomics?

Microeconomics examines the distribution of income and wealth (e.g., auto industry wages, minimum wage, executive salaries, poverty), whereas macroeconomics examines national income (e.g., total wages and salaries, total corporate profits).

How do employment concerns differ between microeconomics and macroeconomics?

Microeconomics focuses on employment by individual businesses and industries (e.g., steel industry jobs, employees in a firm, accountants), whereas macroeconomics focuses on employment and unemployment in the economy as a whole (e.g., total number of jobs, unemployment rate).

What question does behavioral economics investigate regarding savings programs?

Do aggregate household savings increase when we automatically enroll people in savings programs and let them opt out as opposed to requiring them to sign up?

What question does comparative economic systems examine?

How does the resource allocation process differ in market versus command and control systems?

What is an example of a question studied in econometrics?

What inferences can we make based on conditional moment inequalities?

What question does economic development explore regarding employment opportunities for girls?

Does increasing employment opportunities for girls in developing nations increase their educational achievements?

What historical question does economic history analyze regarding nineteenth-century transportation?

How did the growth of railroads and improvement in transportation more generally change the U.S. banking systems in the nineteenth century?

What questions are addressed in environmental economics?

What effect would a tax on carbon have on emissions, and is a tax better or worse than rules?

What core question does the field of finance examine regarding algorithmic trading?

Is high frequency trading socially beneficial?

What question does health economics examine regarding patient costs?

Do co-pays by patients change the choice and use of medicines by insured patients?

What question is studied in the history of economic thought concerning ancient philosophy?

How did Aristotle think about just prices?

What question does industrial organization study in the context of commercial aviation?

How do we explain price wars in the airline industry?

What two questions are examined in international economics?

What are the benefits and costs of free trade? Does concern about the environment change our views of free trade?

What central question is investigated in labor economics regarding wage policy?

Will increasing the minimum wage decrease employment opportunities?

What question does law and economics ask regarding intellectual property?

Does the current U.S. patent law increase or decrease the rate of innovation?

What question does public economics ask concerning governance across nations?

Why is corruption more widespread in some countries than in others?

What question does urban and regional economics investigate concerning metropolitan areas?

Do enterprise zones improve employment opportunities in central cities?

What is 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.

What is normative economics, and what is its alternative name?

An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action. It is also called policy economics.

What is an economic model?

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

What is a variable?

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

What is Ockham's razor?

The principle that irrelevant detail should be cut away.

What does the Latin phrase 'ceteris paribus' mean, and what is its role in economics?

It means 'all else equal' and is a device used to analyze the relationship between two variables while the values of other variables are held unchanged, simplifying reality to focus on relationships of interest.

What is the 'post hoc, ergo propter hoc' fallacy?

Literally translating to 'after this (in time), therefore because of this,' it is a common error in causal thinking where one assumes that because Event A occurred before Event B, Event A caused Event B.

What is empirical economics?

The collection and use of data to test economic theories.

What are the four main criteria used to judge economic outcomes and economic policy?

Efficiency, equity, growth, and stability.

How is efficiency (allocative efficiency) defined in economics?

An efficient economy is one that produces what people want at the least possible cost.

How is equity defined in the context of economic outcomes?

Fairness.

What is economic growth?

An increase in the total output of an economy.

What is economic stability?

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