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CHAPTER 1 CASE FAIR OSTER

Economics - the sudy of how individuals and socieites choose to use the scarce

(limited) resources that nature and previous generations have provided

Opportunity costthe best alternative that we forgo or give up when we make

a choice o a decision

Marginalismthe process of analyzing the additional or incrental costs orbenefits arising from a choice or decision

Sunkcostcosts that cannot be avoided because they have already been

incurred

Efficientmarketa market in which profit opportunities are eliminated almostinstantaneously

Industrialrevolutionthe period in England during the late eighteenth andearly nineteenth centuries in which new manufacturing technologies and

improved transportation gave rise to the modern factory system and a massive

movement of the population from the countryside to the cities

Microeconomicsthe branch of economics that examines the functioning ofindividual industries and the behaviour of individual decision-making units

that is, firms and household

Macroeconomicsthe branch of economics that examines the economic

behaviour of aggregates income, employment, output and so on on a nationalscale

Positiveeconomicsan approach to economics that seeks to understand

behaviour and the operation systems without making judgments. It describes

what exists and how it works

Normativeeconomicsalso policy economics - an approach to economics thatanalyzes outcomes of economic behaviour, evaluates them as good or bad, and

may prescribe courses of action.

Descriptiveeconomicsthe compilation of data that describe phenomena and

facts

Economictheorya statement or set of related statements about cause and

effect, action and reaction

Ceterisparibusall else equal a device used to analyze the relationship

between two variables while values of other variables are held unchanged

Posthoc, ergopropterhocafter this therefore because of this. A common

error made thinking about causation.

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Fallacyofcompositionerror made when thinking what is true for a part istrue for the whole

Empirical economics the collection and use of data to test economic theories

Efficiencyallocative efficiency. An efficient economy is one that produces whatpeople want at the least possible cost

Growthincrease in the total output of an economy

Stabilitya condition in which national output is growing steadily, with low

inflation and full employment of resources

CHAPTER 2 CASE FAIR OSTER

Capitalthings that are produced and then used in the production of other

goods and services

Factors(of production) the inputs into the process of production =

RESOURCES

Productionthe process that transforms scarce resources into useful goods and

services

Inputsor resources, - anything provided by nature or previous generations

that can be used directly or indirectly to satisfy human wants

Outputs

goods and services of value to household

Theory of comparative advantage David Ricardos theory that specializationand free trade will benefit all trading parties, even those that may be absolutely

more efficient producers

Absolute advantage - when the producer can produce a good or service using

fewer resources

Comparative advantage when the producer can produce a good or service at a

lower opportunity cost

Consumer goods goods presented for present consumption

Investment the process of using resources to produce new capital