The Scope of Economics and Principles of Economics (Lecture Notes)

Vocabulary flashcards covering key concepts from the lecture notes on the scope and principles of economics.

Economics

The social science that studies how people allocate scarce resources to satisfy unlimited wants, focusing on choices rather than money.

Economic Agent

Any individual or group that makes choices (e.g., consumers, firms, parents, politicians).

Scarcity

The condition where wants exceed the available resources, forcing trade-offs.

Positive Economic Statements

Statements about how the world is; descriptive and testable with data.

Normative Economic Statements

Statements about how the world ought to be; prescriptive or value-based.

Microeconomics

The study of how individuals, firms, and governments make decisions about scarce resources.

Macroeconomics

The study of the whole economy, including aggregate outcomes like inflation and unemployment.

Optimization

Making the best possible choice given the information available, recognizing trade-offs and imperfect calculation.

Trade-off

Giving up one thing to obtain something else; involves an opportunity cost.

Budget Constraint

The set of bundles of goods a consumer can choose from given a limited budget.

Opportunity Cost

The value of the best alternative use of a resource that must be forgone.

Free Rider Problem

When individuals or groups enjoy the benefits of a situation without paying the costs.

Incentives

Factors that motivate individuals to change their behavior or choices.

Empiricism

Using data and evidence to test theories and understand real-world behavior.

Causality

The relationship between cause and effect, identified through data analysis.

First Principle of Economics: Optimization

Agents strive to make the best choice given information, facing trade-offs and opportunity costs.

Second Principle of Economics: Equilibrium

A state where no one benefits by changing behavior; typically where supply equals demand.

Third Principle of Economics: Empiricism

Using data to determine whether theories match actual human behavior.

Feasible Options

Both available and affordable

Cost-benefit analysis

Calculation that adds up the costs and benefits using a common unit of measurement like dollar values