AU 26 Econ 2001.01: Chapter 1 Flashcards

economics

study of people’s choices among scarce resources and how those chocies affect society

positive economics

describes what people actually do

normative economics

recommends what people, including society, ought to do

microeconomics

study of individuals, firms, and governemnts make choices

macroeconomics

study of the whole economy

How many principles in economics?

3 (optimization, equilibrium, empiricism)

1st principle

people try to optimize, always try to choose the best available option

2nd principle

economic systems tend to be in equilibrium

equilibrium

supple meets demand, no one with benefit/be better off by changing his or her own behavior

free rider problem

when an indivual or group is able to enjoy the benefits of a situation without incurring the costs

• markets have no mechanism for deciding what is fair

3rd principle

empiricism, economists using data to test theories and to determine what is causing things to happen in the real world

empiricism

using data to figure out answers to interesting questions

economic agent

any group/individual that makes choices

• consumers, firms, parents, politicians, etc

scare resources

things that people want where the quanitiy that people want exceeds the amount that is avaliable

scarity

situation of having unlimited wants while having limited resources

trade-offs

when some benefits must be given up in order to gain others

budget constraint

the set of things that a person can choose to do/buy without breaking the budget

• budget constraints describe trade-offs

opportunity costs

best alternative use of a resource