Macroeconomics Chapter 1

Economic Agent

An individual or a group that makes choices.

Positive Economics

Analysis that generates objective descriptions or predictions about the world that can be verified with data.

Normative Economics

Analysis that prescribes what an individual or society ought to do.

Empiricism

Analysis that uses data. Economists use data to test theories and to determine what is causing things to happen in the world.

Budget Constraint

Shows the bundle of goods or services that a customer can choose given her limited budget.

Equilibrium

Special situation in which everyone is simultaneously optimizing, so nobody would benefit personality by changing his or her own behavior.

Scarce Resources

Things that people want, where quantity that people want exceeds the quantity that is available.

Optimization

Trying to choose the best feasible option, given the available information.

Cost-Benefit Analysis

A calculation that adds up costs and benefits using a common unit of measurement, like dollars.

Opportunity Cost

Best alternative use for a resource.

Scarcity

The situation of having unlimited wants in a world of limited resources.

Economics

The study of how agents choose to allocate scare resources and how those choices affect society.

Microeconomics

The study of how individuals, households, firms, and governments make choices, and how those choices affect prices, the allocation of resources, and the well-being of other agents.

Macroeconomics

The study of the economy as a whole. Macroeconomists study economy-wide phenomena, like the growth rate of a country's total economic output, the inflation rate, or the unemployment rate.

Trade-Off

When the agent needs to give up one thing to get something else.