ECON VOCAB.docVIP

ECON VOCAB Chapter 1: Economics – the study of how people make choices under conditions of scarcity and of the results of those choices for society. Rational Person – someone with well-defined goals who tries to fulfill those goals as best he or she can. Economic Surplus – the benefit of taking any action minus its cost. Opportunity Cost – the value of the next-best alternative that must be foregone in order to undertake the activity. Positive Economics – economic analysis that offers cause-and-effect explanations of economic relationships; the propositions, or hypotheses that emerge from positive economics can, in principle, be confirmed or refuted by data; in principle, data can also be used to measure the magnitude of effects predicted by positive economics. Normative Economics – economic statements that reflect subjective value judgements and that are based on ethical positions. Fallacy of Composition – the argument that because something is true a part, it also is true for the whole. Post Hoc Fallacy – the argument that because event A precedes event B, event A causes event B. Time Value of Money – the fact that a given dollar amount today is equivalent to a larger dollar amount in the future, because the money can be invested in an interest-bearing account in the meantime. Sunk Cost – a cost that is beyond recovery at the moment a decision is made. Marginal Cost – the increase in total cost that results from carrying out one additional unit of an activity. Marginal Benefit – the increase in total benefit that results from carrying out one more unit of an activity. Average Cost – total cost of undertaking n units of an activity divided by n. Average Benefit – total benefit of undertaking n units of an activity divided by n. Microeconomics – the study of an individual choice under scarcity, and its implications for the behaviour of prices and quantities in individual markets. Macroeconomics – the study of the performance of national economies and the policies th