Economics and Economic Reasoning

This set of flashcards covers key concepts of economics, focusing on definitions and principles discussed in the lecture notes.

Economics

The study of how human beings coordinate their wants and desires, considering decision-making mechanisms, social customs, and political realities.

Scarcity

The condition that exists because individuals want more than can be produced; there are not enough goods to satisfy all desires.

Microeconomics

The study of individual choice and how that choice is influenced by economic forces.

Macroeconomics

The study of the economy as a whole.

Marginal Cost

The additional cost incurred when producing one more unit of a good or service.

Marginal Benefit

The additional benefit received from consuming one more unit of a good or service.

Opportunity Cost

The benefit that is forfeited by choosing the next-best alternative.

Economic Forces

Necessary reactions to scarcity that influence economic outcomes.

Invisible Hand Theorem

The theory that a market economy will allocate resources efficiently through the price mechanism.

Positive Economics

The branch of economics that focuses on what is and how the economy functions.

Normative Economics

The study of what the goals of the economy should be; involves value judgments.

Art of Economics

Using the knowledge of positive economics to achieve the goals determined in normative economics.

Economic Institutions

Laws, common practices, and organizations in society that affect the economy.

Objective Policy Analysis

Policy analysis that keeps value judgments separate from the analysis.

Subjective Policy Analysis

Policy analysis that reflects the analyst's views on how things should be.

Theorems

Propositions that are logically true based on the assumptions of an economic model.

Precepts

Policy rules that indicate a recommended course of action based on economic analysis.

Costs

The expenses associated with different choices, which can be classified into explicit and implicit costs.

Sunk Costs

Costs that have already been incurred and cannot be recovered. These should not be considered when making new economic decisions.

Economic Model

A framework that places the generalized insights of theory in a specific contextual setting to explain or predict economic behavior.

The Three Central Coordination Problems

The basic questions any economy must answer: 1. What, and how much, to produce? 2. How to produce it? 3. For whom to produce it?

Social Forces

Forces that guide individual actions even though those actions may not be in the individual's selfish interest; often manifests as cultural norms.

Political Forces

Legal directives and government regulations that influence economic outcomes and resource allocation.

Market Force

An economic force that is relatively free to operate in a society, usually through the price mechanism.

Rational behavior

The assumption that individuals act in their own best interest, making choices where the marginal benefit exceeds the marginal cost.

Economic Reasoning

A logic of decision making that compares the additional benefits and additional costs of any activity.

Economics

The study of how human beings coordinate their wants and desires, considering decision-making mechanisms, social customs, and political realities.

Scarcity

The condition that exists because individuals want more than can be produced; there are not enough goods to satisfy all desires.

Microeconomics

The study of individual choice and how that choice is influenced by economic forces.

Macroeconomics

The study of the economy as a whole.

Marginal Cost

The additional cost incurred when producing 1 more unit of a good or service.

Marginal Benefit

The additional benefit received from consuming 1 more unit of a good or service.

Opportunity Cost

The benefit that is forfeited by choosing the next-best alternative.

Economic Forces

Necessary reactions to scarcity that influence economic outcomes.

Invisible Hand Theorem

The theory that a market economy will allocate resources efficiently through the price mechanism.

Positive Economics

The branch of economics that focuses on what is and how the economy functions.

Normative Economics

The study of what the goals of the economy should be; involves value judgments.

Art of Economics

Using the knowledge of positive economics to achieve the goals determined in normative economics.

Economic Institutions

Laws, common practices, and organizations in society that affect the economy.

Objective Policy Analysis

Policy analysis that keeps value judgments separate from the analysis.

Subjective Policy Analysis

Policy analysis that reflects the analyst's views on how things should be.

Theorems

Propositions that are logically true based on the assumptions of an economic model.

Precepts

Policy rules that indicate a recommended course of action based on economic analysis.

Costs

The expenses associated with different choices, which can be classified into explicit and implicit costs.

Sunk Costs

Costs that have already been incurred and cannot be recovered. These should not be considered when making new economic decisions.

Economic Model

A framework that places the generalized insights of theory in a specific contextual setting to explain or predict economic behavior.

The Three Central Coordination Problems

The basic questions any economy must answer: 1. What, and how much, to produce? 2. How to produce it? 3. For whom to produce it?

Social Forces

Forces that guide individual actions even though those actions may not be in the individual's selfish interest; often manifests as cultural norms.

Political Forces

Legal directives and government regulations that influence economic outcomes and resource allocation.

Market Force

An economic force that is relatively free to operate in a society, usually through the price mechanism.

Rational behavior

The assumption that individuals act in their own best interest, making choices where the marginal benefit exceeds the marginal cost (MB > MC).

Economic Reasoning

A logic of decision making that compares the additional benefits and additional costs of any activity.

Marginal Analysis

The process of comparing additional benefits (MB) and additional costs (MC) of an activity to determine the optimal decision where MB = MC.

Incentives

Motivational factors, such as rewards or penalties, that influence the choices and behaviors of individuals or firms.

Efficiency

Achieving a specific goal as cheaply as possible or maximizing the total output from a given set of inputs.

Price Mechanism

The system in which price changes act as signals to coordinate the production and consumption decisions in a market economy.

Explicit Costs

Tangible, out-of-pocket monetary payments made by a firm for the use of resources, such as wages or rent.

Implicit Costs

The opportunity costs associated with using resources already owned by a firm or individual, where no direct money payment is made.