Introduction to Economics and Economic Reasoning

These flashcards cover key concepts and terms from the lecture on economics and economic reasoning.

Economics

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

Scarcity

A situation where goods available are too few to satisfy individuals’ desires; exists because individuals want more than can be produced.

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 over and above costs already incurred.

Marginal Benefit

The additional benefit above what has already been derived.

Opportunity Cost

The benefit that you might have gained from choosing the next-best alternative; it should always be less than the benefit of what you have chosen.

Economic Decision Rule

If the marginal benefits exceed marginal costs (MB > MC), then do it; if marginal costs exceed marginal benefits (MC > MB), then don’t do it.

Invisible Hand

The price mechanism that guides our actions in a market, suggesting that prices will rise and fall based on supply and demand.

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

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

Economic Institutions

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