Macroeconomics 201- Chapter 1

Average Benefit

The total benefit divided by the number of units.

Average Cost

The total cost divided by the number of units.

Ceteris Paribus

Isolating everything outside the margins for everything to remain constant in order to focus on the image or graph at hand.

Sunk Costs

Costs that cannot be recovered.

Sunk Cost Example

Example: Eating at an all-you-can-eat buffet or attending a second year at law school.

Normative Economic Analysis Example

Example: Gas prices are too high or building a space base on the moon will cost too much

Positive Economic Analysis Example

Example: The average price of gasoline in May 2010 was higher than in May 2009 or building a space base on the moon will cost more than the shuttle program

Normative Economic Analysis

Involves a value judgement of the person doing the analysis.

Positive Economic Analysis

Involves data and/or the results of analysis or consequences of policy changes.

No Free Lunch Principle (NFLP)

Nothing is truly free; if something appears to be free, the price is just diverted to another subject.

The Scarcity Principle

People have unlimited wants and limited resources- having more of one good means having less of another.

Macroeconomics

Studies the performance of national economies and the policies that governments use to try to improve that performance.

Cost-Benefit Principle

Take an action if and only if the extra benefits are at least as great as the extra costs.

Rational People

Take an action if and only if the extra benefits are at least as great as the extra costs.

Economic Surplus

The economic surplus of an action is equal to its benefit minus its costs.

Marginal Cost

The increase in the total cost from one additional unit of activity, otherwise called looking at the changes.

Marginal Benefit

The increase in total benefit from one additional unit of an activity.

Microeconomics

The study of choice and its implications for price and quantity in individual markets

Economics

The study of how people make choices under scarcity and the results of these choices for a society.

Opportunity Cost

The value of the best alternative.

Opportunity Cost

The value of what must be foregone in order to undertake an activity (consider explicit and implicit costs).

Macroeconomics Topics

____________________ considers and discusses topics like: monetary policy, deficits, and tax policies.

Microeconomics Topics

_____________________ considers and discusses topics like: cost of production, demand for a product, and exchange rates.