ECON 102 TEST #1

Economics

The social science that studies how individuals, governments, firms, and nations make choices on allocating scarce resources to satisfy their unlimited wants.

Positive Economics

Objective and fact-based statements that can be tested, proven, or disproven.

Normative Economics

Subjective and value-based statements that cannot be proven or disproven; they reflect opinions about 'what ought to be.'

Microeconomics

The study of how households and firms make decisions and interact in specific markets.

Macroeconomics

The study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal.' Used to analyze the effect of one change while holding all other variables constant.

Rationality

The assumption that individuals make choices to maximize their own self-interest, given the available information.

Scientific Method

A systematic approach used by economists to develop and test theories by observing, hypothesizing, collecting data, analyzing, and concluding.

Post Hoc ergo Propter Hoc

The fallacy that assumes that because event B occurred after event A, event A must have caused event B.

Fallacy of Composition

The erroneous belief that what is true for a part is also true for the whole.

Opportunity Cost

The value of the next best alternative that must be foregone when a choice is made.

Absolute Advantage

The ability of an individual, firm, or country to produce more of a good or service than competitors, using the same amount of resources.

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors.

PPF (Production Possibilities Frontier)

A curve that illustrates the variations in the amounts that can be produced of two products with the same limited resources.

MRT (Marginal Rate of Transformation)

The slope of the PPF at any given point, representing the opportunity cost of producing one more unit of a good in terms of another.

Quantity Demanded (Qd)

The specific amount of a good or service that consumers are willing and able to purchase at a particular price.

Law of Demand

As the price of a good or service increases, the quantity demanded decreases, ceteris paribus.

Change in Quantity Demanded

A movement along the demand curve caused solely by a change in the price of the good itself.

Equilibrium Price and Quantity (P* and Q*)

The price and quantity at which the quantity demanded equals the quantity supplied in a market.

Shortage (Excess Demand)

Occurs when the quantity demanded exceeds the quantity supplied at a given price.

Price Floor

A legal minimum price that can be charged for a good or service, leading to a surplus if set above equilibrium.

Price Elasticity of Demand (PED)

A measure of the responsiveness of the quantity demanded of a good to a change in its price.