Economics Chapter 1

Scarcity

A situation in which the amount of something available is insufficient to satisfy the desire for it.

Normative economics

An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics. - Example "government should do something to help low-income families obtain health insurance".. normative because statement reflect a view held by many, but not by everyone. Economists should avoid imposing their own personal views and focus on goals set by society

Fallacy of composition

Occurs when it is incorrectly assumed that what is true for the parts is also true for the whole. - Example, "If one person stands up at a basketball game, that person can see better, if everyone stands up, then no one will have a better view. A tax cut will likely benefit certain individuals, but this does not prove that the tax cut is good for the economy as a whole

Economic models

Simplified representations of the real world that are used to explain how the economy works, or to predict what would happen if something in the economy should change --------------------- Designed to simplify reality in an attempt to explain real-world relationships and predict outcomes. Models are used in a similar fashion in other contexts. For example, if someone wants to give someone directions to the mal, they ight design a simple model like a map.The model will likely show the most important information, like the streets the driver will use to get to the mall, but will not include every possible detail because too many details would just be distracting and confusing.

Macroeconomics

Studies economics aggregates, such as the national unemployment rate, the rate of inflation, and the economy's growth rate, as well as macroeconomic policies designed to promote full employment, price stability, and a healthy rate of economic growth

Microeconomics

Studies the decisions of individuals, households, and firms.It focuses on the interaction of buyers and sellers in specific markets and the production of decisions of firms

Ceteris paribus assumption

The assumption that nothing changes except the factor or factors being studied. - Example "an analyst might assume that consumer income and other variables remain the same in order to focus on how a change in the price of gasoline affects consumption

Fallacy of false cause

The incorrect assumption that one event causes another because the two events tend to occur together. -Example "the relationship between ice cream sales and criminal activity. Conluding that eating ice cream leads to criminal behavior is erroneous.

Positive economics

An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works. -------------------------------------- Deals with statements about what is true, which can be tested against facts - example is "many low-income families do not have health insurance." Economist develop and test positive statements by analyzing economic data. What is true may change depending on location or time period, so positive statements are not universal and require a lot of research. Sometimes disagreement about economic issues rest on disagreements about factual information, but more often they reflect differences in personal values or priorities.

Theory

An economic theories are not necessarily complex; rather, a good economic theory explains important relationships. Many economic theories that have been widely accepted and applied take on the status of a "law" (for example, the law of demand, the law of supply and the law of diminishing returns).

Fallacy of division

Assuming that what is true of the whole is true for the parts. Example: That car is blue. Therefore, its engine is blue. Example: Your family is weird. That means that you are weird too.