Ch. 1

Ceteris Paribus [KAY-ter-us PEAR-uh-bus] Assumption

"other things constant" or "other things equal. The assumption that nothing changes except the factor or factors being studied

Normative Economics

Analysis involving value judgments about economic policies; relates to whether outcomes are good or bad. A statement of what ought to be.

Positive Economics

Analysis that is strictly limited to making either purely descriptive statements or scientific predictions; for example, "If A then B." A statement of what is

Empirical

Economics is an ________. It relys on real-world data in evaluating the usefulness of a model. the evidence to see whether we are right.

Economic System

a society's institutional mechanism for determining the way in which scarce resources are used to satisfy human desires.

Unbounded Rationality

able to consider every relevant choice

Assumption

allows models/theories to define circumstances that are applicable.

Behavioral Economics

an approach to the study of consumer behavior that emphasizes psychological limitations and complications that potentially interfere with rational decision making.

Unbounded Willpower

choices are always consistent with their long-term goals

Command and Control

economic system, (central planing) centralized authority that assumes responsibility for addressing fundamental economic issues. Decides what items to produce and how many.

The Price System

economic system, (market system) individuals and families won all scarce resources used in production. Choices of what and how many items to produce are left to private parties to determine their own initiative.

Bounded Rationality

hypothesis that people are nearly but not fully, rational, so that they cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them

Mixed Economic System

incorporates both market system and central planning.

Unbounded Selfishness

people interested only in own satisfactioin

Models, or Theories

simplified Representations of the real world used as the basis for predictions or explanations

Rationality Assumptiion

the assumption that people do not intentionally make decisions that would leave them worse off. People also respond to changes in incentives

Microeconomics

the study of decision making undertaken by individuals ( households) and by firms.

Economics

the study of how people allocate their limited resources to satisfy their unlimited wants.

Macroeconomics

the study of the behavior of the economy as a whole, including such economy-wide phenomena as changes in unemployment, the general price level, and national income.

Resources

things used to produce goods and services to satisfy people's wants.

Aggregates

total amounts or quantities. _________demand, for example, is total planned expenditures throughout a nation.

Wants

what people would buy if their incomes were unlimited.