Foundations of Economics - Vocabulary

A set of vocabulary flashcards reviewing basic economic concepts, notable economists, utility analysis, methodology, and production functions from Problem Set 1.

Economics

The study of the use of scarce resources.

Lionel Robbins' Definition of Economics

Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

Microeconomic Price of a Choice

The forgone alternative given up when making a decision (for example, choosing a chocolate cookie over a vanilla cookie means the price paid in microeconomic terms is the forgone vanilla cookie).

Money Neutrality

The concept that a change in all prices (inflation) does not affect relative prices.

Microeconomics

The branch of economics concerned with household behavior (utility maximization), firm behavior (profit maximization), and different market forms (perfect competition, monopoly).

Macroeconomics

The branch of economics concerned with national unemployment, monetary policy, and the public debt.

Adam Smith

The father of classical market economics.

John Maynard Keynes

The father of modern macroeconomics.

Alfred Marshall

The father of neoclassical economics ("micro").

Karl Marx

The father of socialist economics.

Marginal Revolution

A distinct characteristic of neoclassical economic thinking.

Diminishing Marginal Utility

The economic principle that as you consume additional units of a good (such as extra bites of a favorite cookie), the utility obtained starts out positive but gets less and less with each extra unit.

Normative Statement

A statement expressing value judgments or opinions about what ought to be, such as "We all should study more economics" or "The central bank should raise interest rates."

Positive Statement

An objective, testable statement describing cause and effect in the economy, such as "If the money supply grows faster than the real economy, inflation goes up."

Hypothesis

An educated guess (typically stated as an if-then statement) as part of the scientific method that must be formulated such that it can be falsified empirically.

Ceteris Paribus Clause

An economic assumption meaning changing one thing while holding everything else constant.

Economic Production Factors

The primary inputs used in the production process, classified into Labor, Capital (which needs to be accumulated), and Land.

Total Utility and Marginal Utility Graph

A coordinate graph illustrating utility from cookie consumption where black dots represent marginal utility ($MU$) and squares represent total utility ($TU$).

Typical Utility Function

A utility function that is increasing at diminishing rates.

Typical Production Function

A production function that is S-shaped.

Marginal Product Function

A function representing marginal product that is inversely U-shaped.

Typical Cost Function

A total cost function that is S-shaped.

Marginal Cost Function ($MC$)

The derivative of the total cost function $TC = 0.1x^3 - 1.25x^2 + 7x + 5$, given by $MC = 0.3x^2 - 2.5x + 7$.

Marginal Utility Function ($MU$)

The derivative of the total utility function $U = 22x^{\frac{1}{2}} = 22\frac{1}{2}\text{x}^{\frac{1}{2}}$, given by $MU = \frac{11}{\text{x}^{\frac{1}{2}}}$ or $MU = 11x^{-\frac{1}{2}}$.