Test 1 Study Guides-Macro

Economics

Study of how human beings coordinate their wants and desires

3 Central Coordinating Problems

1. What and how much to produce
2. How to produce it
3. Whom to produce it

Macroeconomics

Economics as a whole

Microeconomics

Individual

2 elements of scarcity

1. wants
2. means of fulfilling those wants

Marginal Costs

The additional cost to you over and above the costs you have already incurred

Marginal Benefits

The additional benefit above what you’ve already derive

Sunk Costs

Costs that cannot be recovered

Economic Decision Rule

Marginal benefits>marginal costs-→do it

Marginal costs>marginal benefits-→don’t

Opportunity Cost

The benefit that you might have gained from choosing the next-best alternative

3 Primary forces in economic decision making

1. Incentives
2. Expected Utility
3. Desire to economize

Economic Forces

Necessary reaction to scarcity

Market Force

Economic force that is given relatively free reign by society to work through the market

Invisible Hand

Rise and fall of prices that guides our actions in a market

Economic Model

Framework that places the generalized insights of the theory in a more specific contextual setting

Economic Principle

Commonly held economic insight stated as law

Economic Efficency

Achieving a goal as cheap as possible

Economic Institutions

Well-established arrangements and structures that are part of the culture or society

Invisible Hand Theorem

Market economy will tend to allocate resources efficiently

Economic Policies

Actions taken by the government to influence economic actions

Positive Economics

What is, how the economy works

Normative Economics

Goals of a economy should be

Art of Economics

Application of knowledge learned in positive economics to the achievement of the goals one has determined in normative economics

Production Possibility Table

Lists tradeoffs between 2 choices

Production Possibility Curve

Measures the maximum combinations of outputs that can be obtained by inputs