Economics: Basic Terms And Concepts

Front 1

Opportunity Cost

Back 1

The value of the next best alternative, what you give up to do something else

Front 2

Scarcity

Back 2

Unlimited Wants but limited available resources

Front 3

3 questions all economies must answer

Back 3

1. What to produce?

2. How to produce?

3. For whom to produce?

Front 4

Normative Economic Statement

Back 4

Opinion, what should, ought to be done

Front 5

Positive Economic Statement

Back 5

Fact, what is testable

Front 6

Macro-economics

Back 6

Study of economic as a whole

Front 7

Micro-economics

Back 7

Study of how individuals, households, businesses, markets make decisions

Front 8

Resources

Back 8

Land, labor, capital, entrepreneurship

Front 9

Land or natural resources

Back 9

Actual land, minerals, natural gas, oil, etc. Anything that is not produced by man in its original form

Front 10

Labor

Back 10

time used to produce something

Front 11

Capital (economic definition)

Back 11

anything used to produce a good or service

Front 12

2 types of capital

Back 12

physical capital: tools, machines, software etc

human capital: education, skills

Front 13

Ceteris Paribus

Back 13

Latin for all else constant or stays the same

common assumption is economic models

Front 14

Fallacy of composition

Back 14

Assuming that what is good for the individual is good for the group:

Examples:

1. stand up at a basketball game you see better, if everyone stands up no one sees better

2. Paradox of Thrift (Keynes) good for individuals to save but if saving not spending and that hurts economy in short run

Front 15

Fallacy of assocation

Back 15

assuming that becomes two things occurs in time order that one causes the other.

Front 16

Pitfalls of economic thinking

Back 16

1. Assuming Ceteris Paribus exist in real life

2. Fallacy of composition

3. Forgetting that correlation is not causation or fallacy of association

4. Forgetting that time lags occur in real life: changes caused by policy changes do not occur immediately

5. Forgetting that good intentions do not guarantee good results

Front 17

Broken Window Fallacy

Back 17

Assuming that destruction will stimulate the economy because forgetting secondary effects or what is "unseen"

Front 18

Law of unintended Consequences

Back 18

When an action or policy causes unexpected results that occur because various pitfalls of economic thinking were used and secondary effects were not considered.

Front 19

Marginal Analysis

Back 19

looking at the additional effects not the total: for example Marginal cost-the extra cost of producing one more unit or eating one more piece of pizza. Marginal benefit-the extra benefits one gets from eating one more piece of pizza

Front 20

Costs-benefit analysis

Back 20

comparing the costs and benefits of an action, important to include secondary costs and benefits or the law of unintended consequences will occur.

An action should be done when the benefits are greater than the costs.

Front 21

Efficient

Back 21

When both productive and allocative efficiency occur: making the maximum amount of what consumers want with the available resources.

Front 22

Specialization

Back 22

When individuals produce what they have a talent for, or have a comparative advantage in and then exchange with other individuals.

This allows both individuals to consume more than if they had to be self sufficient

Front 23

Comparative advantage

Back 23

having the lowest opportunity cost in producing a good or service

Front 24

Rational

Back 24

Acting in own best self-interest: Does NOT mean selfish

Ex: If a mother jumps in front of a bus to save her child she is still rational: acting in her own self interest.

Front 25

Economics

Back 25

The study of choices made given limited resources.