Chapter __1___ Vocabulary Zvibleman AP Macro Economics Mr.

Partello Period 4

Name Joshua Date 8/27/11

Key Terms and Concepts

Term

Definition

Examples

1 Economics

: the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants

- humans have unlimited wants, but unlimited resources. The economy provides these wants and needs. -scarcity, choice, rational behavior - allocate time, energy, and money to maximize their wellbeing. - decisions involve changes in the status quo each option involves marginal benefits because of scarce resources, and marginal costs. - laws, principles, and models enable the economist, like the natural scientist to understand and explain reality and to predict the various outcomes of a particular actions theories and principles bring order and meaning to facts by arranging them in cause-andeffect order. when economists say that consumer spending rises when personal income increases, they are well aware that some households may save all of an increase in their incomes - they are supported by facts concerning how individuals and institutions actually behave in producing, exchanging, and consuming goods and services

2 Economic

economic way of thinking

Perspective
3 Utility

: pleasure, happiness, or satisfaction

4 Marginal

Analysis

extra, additional, a change in. Comparison of marginal benefits and marginal costs.

5 Scientific

Method

observation, hypothesis, test/experiment, modify hypothesis, continue testing hypothesis.

6 Theoretical

Economics

systematically arrange facts, interpret them, and generalize from them.

Generalizations

: economic theories, principles, and laws. Economic principles are expressed as the tendencies of typical or average consumers, worker, or business firms statements about economic behavior or the economy that enable prediction of the probable effects of certain actions.

8 Principles

9 Other-things-

equal assumption

: CETERIS PARIBUS (in use to construct their generalizations) assumption all other variables except those under immediate consideration are held constant for a particular analysis recognizes that theories and data can be used to formulate policies-courses of action based on economic principles and intended to resolve a specific economic problem or further an economic goal. in order to achieve one, we must sacrifice another.

consider the relationship between the price of Pepsi and the amount of it purchased.

10 Policy

Economics

- you may read in the newspaper that the Federal Reserve has reduced interest rates in increase private spending and prevent a recession efforts to reduce income inequality may weaken incentives to work, invest , innovate, and take business risks, all of which promote economic growth government, household, and business sectors while the problem of unemployment is usually treated as a macroeconomic topic (because unemployment relates to aggregate spending), economists recognize that the decisions made by individual workers in searching for jobs and the way specific product and labor markets operate are also critical in determining the unemployment rate. - we might lump together the millions of consumers in the US economy and treat the as if they were one huge unit called consumers. description, theory development, and theory testing (theoretical economics) at the desirability of certain aspects of the economy.

11 Trade offs

12

Macroeconomic
13

examines either the economy as a while or its basic subdivisions or aggregates. specific economic units

Microeconomic

14 Aggregate

a collection of specific economic units treated as if they were one unit.

15 Positive

economics
16 Normative

facts and cause-and-effect relationships, avoids judgment. incorporate value judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal.

economics

17Fallacy of

composition

what is true for one individual or part of a whole is not necessarily true for a group of individuals or the whole.

you are at a football game and the home team makes an outstanding play. In the excitement, you leap to your feet to get a better view. A valid statement: If you, an individual, stand, your view of the game is improved. but this is also true for the group- for everyone watching the play? Not necessarily. If everyone stands to watch the play, probably nobodyincluding you- will have a better view than when all remain seated. faulty reasoning

18After this,

post hoc, ergo propter hoc

therefore because of this fallacy

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