Principles of Macroeconomics - Chapter 1: Principles, Systems, and Institutions

Vocabulary flashcards covering key macroeconomics concepts from Chapter 1 notes.

Economics

The study of how society allocates scarce resources to satisfy wants.

Scarcity

Limited resources and unlimited desires that force trade-offs; every choice has an opportunity cost.

Opportunity Cost

The value of the next best foregone alternative when a decision is made.

Sunk Cost

Costs already paid that cannot be recovered; should be ignored in future decisions.

Rational Preferences

Preferences that follow rules (completeness, transitivity, reflexivity) enabling sensible choices.

Completeness

The idea that any two options can be compared.

Transitivity

If A is preferred to B and B to C, then A is preferred to C.

Reflexivity

An option is at least as good as itself.

Optimization

Decisions aim to maximize net benefit given constraints.

Net Benefit

Total Benefit minus Total Cost.

MB=MC

Marginal Benefit equals Marginal Cost; optimal stopping point.

Interdependency

Choices depend on what others decide; models simplify to remain tractable.

Ceteris Paribus

Latin for 'all else equal'; a simplifying assumption in models.

Skepticism

Caution toward data; focus on actions and robust evidence in economics.

Correlation and Causation

Correlation does not imply causation; establishing causation often requires rigorous methods.

Heterogeneity

Differences among individuals in abilities and preferences.

Pareto Improvement

An action that makes at least one person better off without making anyone worse off.

Equilibrium

A state with no intrinsic tendency to change, absent external forces.

Market Efficiency

Under certain conditions, markets are Pareto efficient; requires certain assumptions.

Positive Economics

Study of what is or will be; objective statements about facts.

Normative Economics

Study of what ought to be; prescriptive statements about policy.

Government Intervention

Policy actions to improve or distort markets; depends on trade-offs and incentives.

Real vs Nominal

Real variables reflect actual quantities; nominal values include money and prices.

Economic Systems

Ways societies answer what, how, and for whom to produce.

Traditional Economy

Decisions guided by custom/tradition; ownership often communal or constrained by norms.

Centrally Planned Economy

Government ownership/control of resources and production decisions.

Market Economy

Resources owned by households; prices and markets coordinate production.

Mixed Economy

An economy with elements of traditional, planned, and market systems.

Nordic Welfare State

High taxes and extensive social programs within a market-based framework.

Property Rights

Private rights to use, earn income from, and transform property; enforceable and essential for markets.

Economic Institutions

Laws, norms, and organizations shaping economic behavior; vary across nations.