ECON EXAM 1

models

simplified versions

empirical analysis

the use of data to test hypotheses to determine whether a hypothesis fits well with the facts

time

has an economic decision

positive statement

an objective (facts), a testable statement that describes what happens and why it happens, descriptive

hypothesis

a testable prediction about how people will behave or react to a change in a economic circumstance

consumers must make

choices, on what to buy, how much to save, and how much to invest in their limited resources

virtually all theories in economics are expressed using:

a ceteris paribus (holding everything constant assumptions)da

fallacy of composition

the incorrect view that what is true for the individual is always true for the groupm

microeconomics

deals with the smaller units within the economy, attempting to understand the decision-making behavior of firms and households and their interaction in markets for particular goods or services

invisible hand

(market system) market incentives channel individuals' efforts and promote social welfaree

economic behavior

economists assume that individuals act as if they are motivated by self-interest and respond in predicatable ways to changing circumstances

scarcity

resources

inputs used to produce goods and services: land, human effort, skills, and machines

why is abstraction important?

economic theories and models cannot realistically include every event that has ever occured. We must abstract

economics

study of the choices we make among our many wants and desires given our limited resources

the economic problem

the fact that scarcity forces us to choose. And choices are costly because we must give up other opportunities we value

empirical analysis

the use of data to test a hypothesis

normative statement

a subjective (opinion), a contestable statement that attempts to describe what should be done or what to ought to happen

aggregate

the total amount such as the aggregate level of output

macroeconomics

deals with the aggregate or total economy; it looks at economic problems as they influence the whole of society: inflation, unemployment, business cycles, and economic growth

rational self-interest

individuals try to weigh the expected marginal (additional benefits) and marginal (additional costs) of their decisions

rational behavior

people do the best they can, based on their values and information, under current and anticipated future circumstances and they select the one that they expect to give them the best results among the alternatives
-most people make decisions with some expected outcome in mind, their actions are rational and purposeful, not random and chaoticr

rational self-interest

can include the welfare of our family, friends, and the poor people of the world

correlation

when two events occur together

theories and models

simplified versions of the natural world used to explain and predict behavior
-the beginning of any theory is a hypothesis, a testable proposition that makes some type of predicition about behavior in response to specific changes in conditions based on our assumptionsc

causation

when one event brings about another event

command economy

decisions about how many tractors or automobiles to produce and are primarily determined by a government offical or committee associated with the central planning organization

product markets

markets for consumer goods and services, households are buyers and firms are sellers