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study of how human beings coordinate their wants and desires, given the decision- making mechanisms, social customs, and political realities of the society.

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economics

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1. what, and how much, to produce 2. How to produce it 3. For whom to produce

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coordination refers to how three problems facing an economy is solved which are

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the goods available are too few to satisfy individuals desires. has two elements: our wants and means of fulfilling those wants. the degree of ------ is constantly changing. The quantity of goods, services, and usable resources depends on technology and human action, which underlie production.

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scarcity

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a method of reasoning in which one deduces a theory based on a set of almost self-evident principles. The traditional principles upon which economic theories were built are the assumptions that people are rational and self-interested.

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deduction

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a method of reasoning in which one develops general principles by looking for patterns in the data. This has become more important in modern economics since computing technology has improved, lowering the cost of using inductive methods. Economists can now

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induction

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making decisions on the basis of costs and benefits based on the premise that everything has a cost

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economic reasoning

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referring to additional or incremental

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marginal

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additional cost to you over and above the costs you have already incurred; not counting sunk costs

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marginal cost

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costs that have already been incurred and cannot be recovered- in the relevant costs when making a decision.

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sunk costs

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the additional benefit above what you've already derived.

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marginal benefit

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if the marginal benefits of doing something exceed the marginal costs, do it. if the marginal costs of doing something exceed the marginal benefits, don't do it.

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economic decision rule

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the benefit that you might have gained from choosing the next-best alternative. It is the value of that next-best alternative; that is a cost because in choosing one thing, you are precluding an alternative choice.

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opportunity cost

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the necessary reactions to scarcity, they are always operating so society cant choose whether or not to allow these forces to operate forces that affect the availability, production, and distribution of a society's resources among competing users., example :interest rates, inflation, unemployment, economic growth, and other factors that affect the general health and well-being of a nation or the regional economy of an organization.

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economic forces

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an economic force that is given relatively free rein by society to work through the market. This type of force rations by changing prices. when there's a shortage, the price goes up when there's a surplus, the price goes down

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market force

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the price mechanism, the rise and fall of prices that guides our actions in a market.

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invisible hand

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a method of analysis that uses a combination of inductive methods and deductive methods.

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abduction

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a framework that places the generalized insights of the theory in a more specific contextual setting or in an economic principle

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economic model

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a commonly held economic insight stated as a law or general assumption

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economic principle

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a branch of economics that studies the economy through controlled laboratory experiments

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experimental economics

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naturally occurring events that approximate a controlled experiment where something has changed in one place but has not changed somewhere else.

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natural experiments

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propositions that are logically true based on the assumptions in a model

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theorems

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policy rules that conclude that a particular course of action is preferable.

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precepts

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how the market operates to coordinate individuals decisions: based on these theorems When the quantity supplied is greater than the quantity demanded, price has a tendency to fall when the quantity demanded is greater than the quantity supplied, price has a tendency to rise

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pricing mechanism

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achieving a goal as cheaply as possible

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efficiency

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a market economy, through the price mechanism, will tend to allocate resources efficiently this came from microeconomics

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invisible hand theorem

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the study of individual choice, and how that choice is influenced by economic forces. studies things such as the pricing policies of firms, households decisions on what to buy, how markets allocate resources among alternative ends.

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microeconomics

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the study of the economy as a whole. It considers the problems of inflation, unemployment, business cycles, and growth. It focuses on aggregate relationships such as how household consumption is related to income and how government policies can affect growth.

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macroeconomics

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must have a sense of this to apply economic theory to reality. Includes the laws, common practices, and organizations in a society that affect the economy. examples-- Corporations, governments, and cultural norms

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economic institutions

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actions (or inactions) taken by government to influence economic actions.

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Economic policies

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the study of what is, and how the economy works. It explores the pure theory of economics, and it discovers agreed-upon empirical regularities. These empirical regularities are often called empirical facts. One looks for empirical facts and develops theorems

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Positive economics

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normative and the art of economics

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Policies are built on these two branches of economics

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the study of what the goals of the economy should be

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normative economics

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also called political economy, the application of the knowledge learned in positive economics to the achievement of the goals one has determined in normative economics it is specifically about policy; designed to arrive at precepts or guides for policy. requires economists to assess the appropriateness of theorems to achieving the normative goals in the real world.

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art of economics

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positive economics, where you are working with abstract models to understand how the economy works.

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maintaining objectivity is easiest in

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normative economics, where you must always be objective about whose normative values you are using. It's easy to assume that all of society shares your values , but that assumption is often wrong.

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Maintaining objectivity is harder in

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the art of economics because it can suffer from the problems of both positive and normative economics

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maintaining objectivity is hardest in

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