Chapter 1: Thinking Like an Economist Flashcards

Vocabulary flashcards covering fundamental economic concepts, principles, and mathematical foundations from Chapter 1.

Economics

The study of how people make choices under scarcity and the results of these choices for society.

Scarcity Principle

A core economic principle stating that boundless wants paired with limited resources means having more of one good thing usually requires having less of another; also called the No Free-Lunch Principle.

Cost-Benefit Principle

A core economic principle stating that an action should be taken if, and only if, the extra benefits are at least as great as the extra costs.

Rational Person

An individual who has well-defined goals and tries to fulfill those goals as best they can.

Economic Surplus

The total benefit of an action minus its total costs, represented mathematically as $\text{Economic Surplus} = \text{Total Benefits} - \text{Total Costs}$.

Opportunity Cost

The value of what must be foregone in order to undertake an activity, considering only the single best alternative.

Economic Model

An abstract representation of key relationships based on simplifying assumptions.

Implicit Costs

The non-monetary costs or foregone opportunities associated with undertaking an activity.

Explicit Costs

The direct monetary outlays associated with undertaking an activity.

Sunk Cost

A cost that cannot be recovered and should be ignored when making decisions about future actions.

Marginal Cost

The increase in total cost that results from carrying out one additional unit of an activity.

Average Cost

The total cost of an activity divided by the total number of units carried out.

Marginal Benefit

The increase in total benefit that results from carrying out one additional unit of an activity.

Average Benefit

The total benefit of an activity divided by the total number of units carried out.

Normative Economic Principle

A principle that offers guidance on how people should behave.

Positive Economic Principle

A principle that predicts how people will actually behave.

Incentive Principle

A principle stating that an action is more likely to be taken if its benefits rise, and less likely to be taken if its costs rise.

Microeconomics

The study of individual choice and its implications for price and quantity in specific individual markets.

Macroeconomics

The study of the performance of national economies and the policies that governments use to try to improve national economic performance.

Equation

A mathematical expression that describes the relationship between two or more variables.

Variable

A quantity that is free to take a range of different values.

Dependent Variable

A variable in an equation whose value is determined by the value taken by another variable in the equation.

Independent Variable

A variable in an equation whose value determines the value taken by another variable in the equation.

Constant (or Parameter)

A quantity in an equation that is fixed in value.

Vertical Intercept

In a straight line graph, the value taken by the dependent variable when the independent variable equals $0$.

Slope

In a straight line graph, the ratio of the vertical distance the line travels between any two points (rise) to the corresponding horizontal distance (run).