question

Ask what is or what will be. Example: Unemployment is up 9%.

answer

Positive Questions

question

Ask what ought to be. Example: Government must take action to reduce unemployment.

answer

Normative Questions

question

When an economic agent chooses the best feasible option they are __________.

answer

Optimizing

question

Calculates the total net benefit of different alternatives, and then chooses the best alternative.

answer

Optimization in Levels

question

Calculates the change in net benefits when a person switches from one alternative to another, and then uses these marginal comparisons to choose the best alternative.

answer

Optimization in Differences

question

Should always yield answers in perfect agreement. They give identical answers. These techniques are two sides of the same coin.

answer

Optimization in Levels and Optimization in Differences

question

Believe that optimization describes most of the choices that people, households, and governments make. They also believe that people's behavior is approximated by optimization.

answer

Economists

question

Identifies the specific situations in which people fail to optimize and explain these optimization failures by combining economic and psychological theories of human behavior.

answer

Behavioral Economics

question

1. Translate all costs and benefits into common units, like dollars per month. 2. Calculate the total net benefit of each alternative. 3. Pick the alternative with the highest net benefit.

answer

3 Steps of Optimization in Levels

question

The best feasible choice. In other words, the optimum is the optimal choice.

answer

Optimum

question

The comparison of economic outcomes before and after some economic variable is changed.

answer

Comparable statistics analysis

question

Is a cost benefit calculation that studies the difference between a feasible alternative and the next feasible alternative. It will never change the ultimate answer to the question "what is optimal?" but it will change the way that you think about optimizing.

answer

Marginal Analysis

question

Economists use this word to indicate a difference between alternatives, usually a difference that represents one "step" or "unit" more.

answer

Marginal cost

question

An optimal feasible alternative has the property that moving to it makes you better off and moving away from it makes you worse off.

answer

The Principle of Optimization at the Margin

question

Will always pick out a single optimal alternative.

answer

Optimization using marginal analysis

question

1. Translate all costs and benefits into common units, like dollars per month. 2. Calculate the marginal consequences of moving between alternatives. 3. Apply the Principle of Optimization at the Margin by choosing the best alternative with the property that moving to it makes you better off and moving away from it makes you worse.

answer

3 Steps of Optimization in Differences

question

Optimization describes, or at least approximates, many of the choices economists agents make. Economists believe that most people optimize most of the time. But economists don't take optimization for granted. Economists research attempts to answer the question: Do people optimize? Using optimization to describe and predict behavior is an example of positive economic analysis.

answer

Economists believe that

question

An excellent tool box - especially, cost-benefit analysis and marginal analysis - for improving decision making that is not already optimal. Using optimization to improve decision making is an example of normative economic analysis.

answer

Optimization also provides

question

The change in net benefits when you switch from one alternative to another. The most important example is marginal analysis, a cost-benefit calculation that focuses on the difference between one alternative and the next alternative. Marginal analysis compares the consequences of doing one step more of something. Marginal cost is the extra cost generated by moving from one alternative to the next alternative.

answer

Optimization in differences analyzes

question

A simplified description of reality.

answer

A model

question

Evaluate the accuracy of models and understand how the world works.

answer

Economists use data to

question

means that there is a mutual relationship between two things. Does not imply casualty. It can also arise when causation is not present.

answer

Correlation

question

Help economists measure cause and effect.

answer

Experiments

question

focuses on questions that are important to society and can be answered with models and data.

answer

Economic research

question

is the name for the ongoing process that economists and other scientists use to 1) Develop mathematical models of the world 2) Test those models with data

answer

Scientific Method

question

is a simplified description, or representation, of the world. Sometimes economists will refer to a model as a theory. These terms are often used interchangeably.

answer

Model

question

make predictions that can be checked with data.

answer

All scientific models

question

facts, measurements, or statistics that describe the world.

answer

Data

question

is a set of facts established by observations and measurement.

answer

Empirical evidence

question

are predictions typically generated by a model that can be tested. When conducting empirical analysis, economists refer to a model's predictions as hypothesis.

answer

Hypothesis

question

All economic models begin with assumptions.

answer

Assumptions

question

1) A model is an approximation or average relationship in most circumstances. 2) A model makes predictions that can be tested with data.

answer

Two important properties in all Models

question

is the sum of all the different values divided by the number of values.

answer

Mean or Average

question

Strengthen the force of an empirical argument because the researchers can make more precise statements.

answer

Observations

question

based on many observations, are a key component of the scientific method.

answer

Credible empirical arguments

question

it is easy to jump to the wrong conclusion.

answer

When you look at only a small amount of data

question

should not be taken too seriously.

answer

Argument by anecdote

question

is appropriate when you are contradicting a blanket statement.

answer

Argument by example

question

occurs when one thing directly affects another through a cause-and-effect relationship. You can think of it as the path from cause to effect. An example is putting a snowball in a hot oven causes it to melt.

answer

Causation

question

1) Positive Correlation 2) Negative Correlation 3) Zero Correlation

answer

3 Categories of Correlation

question

is a factor that is likely to change or vary. Economists refer to some factor, like a household's income as a variable.

answer

Variable

question

implies that two variables tend to move in the same direction. An example is: surveys reveal that people that have a relatively high income are more likely to be married than people who have a relatively low income.

answer

Positive correlation

question

implies that two variable tend to move in opposite directions. An example is: people with a high level of education are less likely to be unemployed.

answer

Negative correlation

question

When the variables have movements that are not related. An example is: the number of friends you have likely has no relation to whether your address is on the odd or even side of the street.

answer

Zero correlation

question

1) Omitted variables 2) Reverse causality

answer

2 reasons why we should not jump to the conclusion that a correlation between two variables implies a particular causal relationship:

question

is something that has been left out of a study that, if included, would explain why two variables that are in the study are correlated.

answer

Omitted variable

question

occurs when we mix up the direction of cause and effect.

answer

Reverse causality

question

is a controlled method of investigating causal relationships among variables.

answer

Experiment

question

is the assignment of subjects by chance, rather than by choice, to a treatment group or control group.

answer

Randomization

question

is an empirical study in which some process - out of the control of the experimenter - has assigned subjects to control and treatment groups in a RANDOM or nearly random way.

answer

Natural experiment

question

1) They can sometimes be costly to conduct. 2) They do not provide immediate answers. 3) They are sometimes run poorly.

answer

3 problems with experiments

question

1) Good questions address topics that are important to individual economic agents and or to our society. Economists tend to think about economic research as something that contributes to society's welfare. 2) Good economic questions CAN be answered. For example: Philosophers believe that some of the most important questions don't have answers. In contrast, economists are primarily interested in questions that CAN be answered with enough hard work and careful reasoning.

answer

2 Properties of economic questions

question

is the study of people's choices. It's the study of how agents choose to allocate scarce resources and how those choices affect society.

answer

Economics

question

is that people try to optimize: they try to choose the best available option.

answer

The first principle of economics

question

is that economic systems tend to be in equilibrium, a situation in which nobody would benefit changing his or her own behavior.

answer

The second principle of economics

question

is empiricism - analysis that uses data. Economists use data to test theories and to determine what is causing things to happen in the world.

answer

The third principle of economics

question

is the unifying feature of all the things that economists study.

answer

Choice - not money -

question

is an individual or group that makes choices.

answer

Economic agent

question

are things that people want, where the quantity that people want exceeds the quantity that is available.

answer

Scarce resources

question

is the situation of having unlimited wants in a world of limited resources.

answer

Scarcity

question

1) Describe what people actually do; positive economics. 2) Recommends what people ought to do; normative economics.

answer

2 kinds of economic analysis

question

is analysis that generates objective descriptions or predictions about the world that can be verified with data.

answer

Positive economics

question

is analysis that prescribes what an individual or society ought to do.

answer

Normative economics

question

is the study of how individuals, households, firms, and governments make choices and how those choices affect prices, the allocation of resources, and the well-being of other agents.

answer

Microeconomics

question

is the study of the economy as a whole. Macroeconomists study economy-wide phenomena, like the growth rate of a country's total economic output, the inflation rate, or the employment rate.

answer

Macroeconomics

question

People decide what to do by consciously or unconsciously weighing all of the known pros and cons of the different available options and trying to pick the best feasible option.

answer

Optimization

question

is the special situation in which everyone is simultaneously optimizing, so nobody would benefit personally by changing his or her own behavior.

answer

Equilibrium

question

is the analysis that uses data. Economists use data to test theories and to determine what is causing things to happen in the world.

answer

Empiricism

question

1) Optimization 2) Equilibrium 3) Empiricism

answer

The 3 Principles of Economics

question

normative economic analysis can help them realize their mistakes and make better choices.

answer

In cases where agents fail to optimize

question

is when an economic agent needs to give up one thing to get something else.

answer

Trade-off

question

shows the bundles of goods or services that a consumer can choose given their limited budget.

answer

Budget constraint

question

is the best alternative use of a resource.

answer

Opportunity cost

question

is a calculation that adds up costs and benefits using a common unit of measurement, like dollars.

answer

Cost-benefit analysis

question

everyone is simultaneously optimizing, so nobody would benefit by changing their behavior. An example is when all the check out lines have the wait time. No shopper has an incentive to switch lines. Nobody perceives that they will benefit by changing their behavior.

answer

In Equilibrium

question

People who don't contribute but still benefit from the investment that others make.

answer

The free-rider problem

question

consider many issues, including trade-offs, budget constraints, opportunity costs, and cost-benefit analysis.

answer

To optimize and economic agent needs to

question

We call such evidence-based analysis empirical analysis or empiricism.

answer

Economists test their ideas with data.

question

to determine whether our theories about human behavior - like optimization and equilibrium - match actual human behavior. Economists also use data to determine what is causing things to happen in the world.

answer

Economists use data

Economics Chapters 1-3 Review – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards