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24 terms

Microeconomics Chapter 1

STUDY
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incentives
rewards for engaging in particular study
economics
the study of how people allocate their limited resources to satisfy their unlimited wants
resources
things used to produce goods and services to satisfy people's wants
wants
what people would buy if their incomes were unlimited
microeconomics
the study of decision making undertaken by individuals (or households) and by firms
macroeconomics
the study of the behavior of the economy as a whole, including such economywide phenomena as changes in unemployment, the general price level, and national income
aggregates
total amounts or quantities; aggregate demand, for example, is total planned expenditures throughout a nation
economic system
a society's institutional mechanism for determining the way in which scarce resources are used to satisfy humans desires
rationality assumption
the assumption that people do not intentionally make decisions that would leave them worse off
models, or theories
simplified representations of the real world used as the basis for predictions or explanations
ceteris paribus assumption
the assumption that nothing changes except the factor or factors being studied
empirical
relying on real-world data in evaluating the usefulness of a model
behavioral economics
an approach to the study of consumer behavior that emphasizes psychological limitations and complications that potentially interfere with rational decision making
bounded rationality
the hypothesis that people are nearby, but not fully, rational, so that they cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them
positive economics
analysis that is strictly limited to making either purely descriptive statements or specific predictions; for example, "If A, then B" A statement of what is
normative economics
analysis involving value judgements about economic policies; relates to whether outcomes are good or bad. A statement of what ought to be.
economic way of thinking
the approach to improved decision making advocated by economists
yes
myra decides to study an extra hour for her test to pass it.. based on rationality assumption or not
no
coin toss. rationality assumption or not
yes
deciding to buy a cd if you work over 2 hours. rationality assumption or not
rational, incentives
economics assumes people are _______ and respond to different ________
bounded rationality
individuals make short run choices that are non consistent with their long-term goals
the individual decides against health care as it may make him better off
does not apply to the economic way of thinking with issues in health care.
congress passes a huge appropriations bill leading to increased government spending
a reduction of income tax rates will result in more people working: one thing that might change thus offset the outcome stated