Microeconomics Chapter 1 Vocab + Main Ideas

From Microeconomics, 10th edition by Dylan Colander

Economics

The study of how humans coordinate wants and desires given the decision-making mechanisms, social customs, and political realities of society

Scarcity

The goods available are too few to satisfy individuals’ desires 

Microeconomics

The study of individual choice and how it’s influenced by economic forces 

Macroeconomics

The study of the economy as a whole. It considers the problems of inflation, unemployment, business cycles, and growth.

Economic Reasoning

Making decisions on the basis of costs and benefits

Marginal Costs

The additional cost to you over and above the costs you have already incurred

Sunk Costs

Costs that have already been incurred and cannot be recovered

Marginal Benefit

The additional benefit above what you’ve already derived

Opportunity Cost

The benefit that you might’ve gained from choosing the next-best alternative

Implicit Costs

Costs associated with a decision that aren’t often included in normal accounting costs

Economic Forces

The necessary reactions to scarcity

Market Force

An economic force that is given relatively free rein by society to work through the market

Invisible Hand

The price mechanism, the rise and fall of prices that guides our actions in a market

Social Forces

Forces that guide individual actions even though those actions may not be in an individual’s selfish interest

Political Forces

Legal directives that direct individuals’ actions

Economic Model

A framework that places the generalized insights of the theory in a more specific contextual setting

Economic Prinicple

A commonly held economic insight stated as a law or principle

Experimental Economics

A branch of economics that studies the economy through controlled experiments

Invisible Hand Theorem

A market economy, through the price mechanism, will tend to allocate resources efficently

Economic polices

Actions (or inaction) taken by the government to influence economic actions

Positive Economics

The study of what is, and how the economy works

Normative Economics

The study of what the goals of the economy should be

Art of Economics

The application of the knowledge learned in positive economics to achieve the goals one has determined in normative economics

What are the three central problems facing the economy?

1- What, and how much, to produce

2- How to produce it

3- From whom to produce it

What are the two elements of scarcity?

Our wants and our means of fulfilling those wants

How does the economy deal with scarcity?

Coercion

Limiting people’s wants and increasing the amount of work people are willing to do for those wants

Summarize economic knowledge in one sentence

There Ain’t No Such Thing As A Free Lunch (TANSTAAFL)

What is the economic decision rule?

If the marginal benefits of doing something exceed the marginal costs, do it.

If the marginal costs of doing something exceed the marginal benefits, don’t do it

What are the three categories of economics?

Positive economics, normative economics, and the art of economics