Economics

Law of Diminishing Marginal Benefits

For all human actions, as the quantity of a good increases, the benefit from each additional unit diminishes

economic principle

a commonly help insight stated as a law or general assumption/prediction

economic models

abstract constructs (simplified descriptions) that allow us to analyze situations in a logical wayy

marginalism

decisions are based upon the cost-benefit principle

production possibility table

lists a choice's opportunity costs by summarizing alternative outputs achievable with available inputs

income elasticity of demand

measures how responsive demand is to a change in income

price elasticity of supply

measures how responsive producers are to a price change

production possibility curve

shows combinations of maximum outputs achievable from given inputs

The demand curve

shows the maximum quantity that consumers are willing to purchase at any given price or the maximum price that consumers are willing to pay for any given quantity

supply curve

shows the maximum quantity that sellers are willing to sell at any given price or the minimum price that sellers are willing to receive for any given quantity

normative analysis

statements that reflect individual opinions (prescriptive analysis)

opportunity cost

the value of the highest valued alternative foregone

The principle of comparative advantage

trade benefits everyone in a society because it allows people to specialize in activities in which they have a comparative advantage, and thereby increases social output

economic naturalism

using insights from economics to help make sense of observations of everyday life

The Cost Benefit Principle

An individual undertakes an action if the extra benefits from taking the action are at least as great as the extra costs

The Scarcity Principle

There No-Free Lunch Principle

ceteris paribus proviso

a constraint on theorizing, not an aspect of the real world

sunk cost

a cost that is beyond recovery at the moment of decision

decrease in demand

a decrease in the maximum quantity consumers will purchase at a given price, or a decrease in the price consumers will pay for any given quantity

decrease in supply

a decrease in the maximum quantity sellers will offer to sell at a given price, or an increase in the minimum price sellers will accept for any given quantity

price floor

a legally established minimum price which a seller can charge or a buyer must pay.

price elasticity of demand

a measure of the responsiveness of quantity demanded to changes in price

laiseez-faire

an economic policy of leaving coordination of individual's actions to the market (voluntary social cooperation)

increase in demand

an increase in the maximum quantity consumers will purchase at a given price or an increase in the price consumers will pay for any given quantity

increase in supply

an increase in the maximum quantity sellers will offer to sell at a given price, or a decrease in the minimum price sellers will accept for any given quantity

The rationality principle

an individual acts to fulfill one's goals best as one can

market

any institution, mechanism or arrangement which facilitates voluntary cooperation among individuals

quotas

direct limit on imports: regulate the quantity of imports

subjectivism

each individual's values, knowledge, and expectations are unique

pitfall

failing to ignore sunk costs

economic theories

general insights into how economics work

imports

good produced abroad and sold domestically

exports

goods produced domestically and sold abroad

net importer

if the price of a good or service in a closed economy is greater than the world price and that economy opens itself to trade

net exporter

if the price of a good or service in a closed economy is less than the world price and that economy opens itself to trade

tariffs

indirect limit on imports: impose a tax on imports

absolute advantage

one country can produce a good with less cost than the other country

comparative advantage

one country can produce a good with relatively less cost than the other country

demand

refers to the good or service

supply

refers to the offers of sellers to sell a good or service

price ceiling

s a legally established maximum price which a seller can charge or a buyer must pay.

market economy

solves the three central problems through the decentralized interaction of individuals

positive analysis

statements or assertions dealing with matters of fact or questions about how things are (descriptive analysis)

methodological individualism

the argument that all economic phenomena should be reduced to individual choice

economic surplus

the benefit of taking any action minus its cost

world price

the price at which a good or service is traded in international markets

the law of demand

the quantity demanded of a good or service is an inverse function of the good or service's own price

the law of supply

the quantity supplied of a good or service is a positive function of the good or service's own price

scarcity

the relationship that occurs because wants are boundless and resources are limited are limited . Having more of one thing usually means having less of another.

cross price elasticity of demand

the responsiveness of the demand for one good to changes in the price of another good

Economics

the study of how people make choices under conditions of scarcity and of the results of those choice for society

microeconomics

the study of the individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets and of the effect of government policies upon that behavior

macroeconomics

the study of the performance of national economics, and of the effects of government policies upon that performance

positive economics

the study of what is; how the economy works (economic science)

normative economics

the study of what should be ; what the goals of the economy should be (political economy)