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Economics
The study of how people choose to use their limited resources to satisfy their unlimited wants.
Economy
A system used to manage limited resources for the production, distribution, and consumption of goods and services.
Positive Economics
The branch of economics that uses objective analysis to find out how the world works. The goal is to describe how things are.
Normative Economics
The branch of economics that applies value judgements to data in order to recommend actions or policies. The goal is to advise how things ought to be.
Scarcity
The condition that results because people have limited resources but unlimited wants.
Tradeoff
The exchange of one benefit or advantage for another that is thought to be better.
Cost-Benefit Analysis
A way to compare the costs of an action with the benefits of that action. If benefits exceed costs, then the action is worth taking.
Incentive
Any factor that encourages or motivates a person to do something. Prices, taxes, and laws create incentives that influence how people behave.
Economic enigmas
Puzzles or riddles that might be explained through an economic analysis.
Resource
Anything used to produce an economic good or a service. They are limited, or scarce, because they exist in infinite amounts.
Microeconomics
Looks at economic decision making by individuals, households, and businesses.
Macroeconomics
Focuses on the workings of an economy as a whole.
Scarcity-forces-tradeoffs principle
Reminds us that limited resources force people to make choices and face tradeoffs when they choose.
No-free-lunch principle
Another name for the scarcity-forces-tradeoffs principle. This name stems from the observation that every choice- even that of accepting free lunch- involves tradeoffs.
Benefits
What you gain from something in terms of money, time, experience, or other improvements in your situation.
Cost-versus-benefits principle
Tells us that people choose something when the benefits of doing so are greater than the costs.
Costs
What you spend in money, time, effort, or other sacrifices to get it.
Margin
The border or outer edge of something.
Thinking-at-the-margin principle
Tells us that most of the decisions we make each day involve choices about a little more or a little less of something rather than making a wholesale change.
Marginal cost
What you give up to add one unit to an activity.
Marginal benefit
What you gain by adding one more unit.
Incentives-matter principle
Simply says that people respond to incentives in generally predictable ways.
Trade-makes-people-better-off principle
Tells us that by focusing on what we do well and then trading with others, we will end up with more and better choices than by trying to do everything for ourselves
Market
Any arrangement that brings buyers and sellers together to do business with each other.
Markets-coordinate-trade principle
States that markets usually do better than anyone or anything else at coordinating exchanges between buyers and sellers.
Invisible hand
A metaphor, guiding human affairs to explain this mystery.
Future-consequences-count principle
Tells us that decisions made today have consequences not only for today but also in the future.
Law of unintended consequences
This law says that actions of people and governments always have effects that are not expected, or that are "unintended".
Scientific Method
Involves posing a question, researching the question, developing a hypothesis, conducting studies and collecting information, analyzing the information, and then evaluating the hypothesis.
Data
Factual information that gives you vital insights into the physical world and its processes.
Graph
A visual representation of the relationship between two given sets of data.
Variable
A quantity that can vary, or change.
Axis
Each of the two perpendicular lines in a graph.
Curve
Any line representing data points plotted on a graph.
Economic model
A simplified representation of reality that often allows economists to focus on the effects of one change at a time.
Rational-behavior model
This model is a tool for understanding the mystery of human behavior. It theorizes that people behave in ways that are rational, or based on reason.
Ceteris paribus
Latin for "other things being equal" or "other relevant factors remaining unchanged."
