Chapter 1 - Intro to Economics

Economics

The study of choices we make among our many wants and desires given our limited resources

Resources

Inputs used to produce goods and services

Scarcity

The situation that exists because our unlimited wants exceed our limited resources

Economic Problem

The fact that scarcity forces us to choose, and choices are costly because we must give up other opportunities that we value

Rational Behavior

When people do the best they can, based on their values and information, under current and anticipated future circumstances

Theories and Models

Simplified versions of the real world used to explain and predict behavior

Hypothesis

A testable proposition

Empirical Hypothesis

The use of data to test a hypothesis

Microeconomics

The study of household and firm behavior and how they interact in the marketplace

Macroeconomics

The study of the whole economy, including the topics of inflation, unemployment, and economic growth

Aggregate

The total amount—such as the aggregate level of output

Correlation

When two events occur together

Causation

When one event brings about another event

Fallacy of Composition

The incorrect view that what is true for the individual is always true for the group

Positive Statement

An objective, testable statement that describes what happens and why it happens

Normative Statement

A subjective, contestable statement that attempts to describe what should be done