Economics CHP 1

economics

the study of how people use limited resources for unlimited wants

Economy

system used to manage limited resources for production distribution and consumption of goals

positive economics

the branch of economics that uses objective analysis to find how economy works

normative economics

branch that applies value judgements to data in order to recomend actions or policies

scarcity

condition resulting from limited resources for unlimited wants

tradeoff

exchange of one benefit or advantage for another thought to be better

opportunity cost

value of next best alternative given up when making a choice

cost benefit analysis

way to compare cost of an action to its benefit

incentive

something that motivates a person to make an action

costs

whats given up in exchange for something

benefits

what is gained from something

marginal costs

what is given up by adding one more unit to an activity

marginal benefit

what is gained by adding one more unit to an activity

invisible hand

metaphor of how an individuals pursuit of wealth can benefit society

scientific method

1. pose question 2. research question 3. develop hypothesis 4. conduct study/collect data 5. analyze data 6. evaluate hypothesis

economic model

representation of reality that allows economists to focus on the effects of one change

rational behavior model

idea that people behave in ways based on reason and self interest

ceteris paribus

assumption that all factors other than those being considered remain the same