Microeconomics for Business - Chapter 1: Economics as a Science

This set of vocabulary flashcards covers the fundamental definitions and principles of economics, including the distinction between micro and macroeconomics, the concept of scarcity, rational choice behavior, and positive versus normative analysis.

Economy

Refers to the economic event(s) that economist-scientists study.

Economics

The science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

Oikonomos

A Greek word meaning "home economics" or "managing a household," from which the word economy is derived.

Scarcity

The tension between unlimited desires for goods and services and the limited available resources such as raw materials, labour, and capital.

Economic Agents

Individuals and institutions making decisions concerning economic activities, such as households, firms, governments, financial institutions, and foreign countries.

Microeconomics

The study of how households and businesses make choices and decisions, and how they interact in the marketplace.

Macroeconomics

The study of economy-wide phenomena such as inflation, unemployment, and economic growth.

Homo economicus

A model of an economic agent who makes rational choices (the best choices according to preferences) from possible choices determined by constraints.

Efficiency

The property of society getting the most that it can from its scarce resources.

Equity

The property of distributing economic prosperity fairly among the members of society.

Opportunity Cost

The explicit cost of a chosen option plus the value of the foregone best possible alternative use of the resources.

Marginal Changes

Small incremental adjustments to a plan of action.

Rational Decision Rule

A rational decision maker takes an action only if the marginal benefit or revenue ($MR$) exceeds its marginal cost ($MC$), often expressed as MR \text{ } \bgeq \text{ } MC.

Stimuli (Incentives)

Factors that motivate people to change their behavior because the costs and/or revenues of their decisions have changed.

Positive perspective

The science of choice that views society as an interplay of human choices and describes the situation as it is in a neutral manner.

Normative perspective

The science of evaluation and economic policy that evaluates economic outcomes in terms of social welfare and prescribes what should happen based on value judgments.

Pareto principle

An economic evaluation principle stating that if we can make at least one person better off without making others worse off, then the outcome is considered an improvement.