Microeconomics and Behavior Chapter 1 Key Terms

invisible hand

term economists use to describe the self-regulating nature of the marketplace

positive economics

the branch of economic analysis that describes the way the economy actually works

external cost

an uncompensated cost that an individual or firm imposes on others

marginal analysis

analysis that involves comparing marginal benefits and marginal costs

proportional thinking

Fractions, decimals, ratios

Scarcity

Limited quantities of resources to meet unlimited wants

explicit costs

The actual payments a firm makes to its factors of production and other suppliers.

Macroeconomics

The study of the economy as a whole

Homo Economicus

a term used to describe a person who would make rational decisions in ways predicted by economic theories

cost-benefit analysis

a decision-making process in which you compare what you will sacrifice and gain by a specific action

sunk costs

costs that have already been incurred and cannot be recovered

normative economics

makes prescriptions about the way the economy should work

Economic Naturalist

someone who uses insights from economics to help make sense of observations from everyday life

Microeconomics

the study of how households and firms make decisions and how they interact in markets

Opportunity Cost

whatever must be given up to obtain some item