question
Positive Statement
answer
Objective statements that can be tested or rejected by referring to the available evidence. Positive economics deals with objective explanation. For example: "A rise in consumer incomes will lead to a rise in the demand for new cars."
question
Normative Statement
answer
These are value judgements or opinions. These statements cannot be scientifically proved or disproved. They often include words such as 'should', 'ought', 'fair', 'unfair', 'too much' and 'too little.
question
Constraint Optimization
answer
How to allocate scarce resources: "Make the best out of what we have."
question
Economic Model
answer
A simplified version of reality used to analyze real-world economic situations
question
Opportunity Cost
answer
Cost of the next best alternative use of money, time, or resources when one choice is made rather than another.
question
Three Fundamental Economic Questions
answer
1) What to produce (production decision)? 2) How to produce it (resource use decision)? and 3) For whom to produce it (distributional decision)?
question
Choices at the margin
answer
decisions based on the additional benefits and costs of small changes in a particular activity
question
Microeconomics
answer
The branch of economics that focuses on how human behavior affects the conduct of affairs within narrowly defined units, such as individual households or business firms.
question
Ceteris Paribus
answer
A Latin term meaning "other things constant" that is used when the effect of one change is being described, recognizing that if other things changed, they also could affect the result. Economists often describe the effects of one change, knowing that in the real world, other things might change and also exert an effect.
question
Fallacy of false cause
answer
The incorrect assumption that one event causes another because the two events tend to occur together.
question
Quantity Demanded
answer
How many units of a good or service consumers are willing and able to buy at one specified price.
question
Demand Curve
answer
A graph of the relationship between the price of a good and the quantity demanded
question
Demand Schedule
answer
A table that shows the relationship between the price of a good and the quantity demanded
question
Demand Shifter
answer
a factor other than price that can cause a change in demand for a good or service; examples include changes in consumer incomes or tastes
question
Substitute
answer
Two goods for which the increase in price of one increases the demand for the other.
question
Complement
answer
Two goods for which the increase in price of one reduces the demand for the other.
question
Normal Good
answer
A good for which the demand increases as income rises and decreases as income falls
question
Inferior Good
answer
A good that consumers demand less of when their income increases
question
Change in quantity supplied
answer
A movement from one point to another on a fixed supply curve.
question
Supply curve
answer
A graph of the relationship between the price of a good and the quantity supplied
question
Supply schedule
answer
A table that shows the relationship between the price of a good and the quantity supplied
question
Change in supply
answer
A change in the quantity supplied of a good or service at every price; a shift of the supply curve to the left or right.
question
Supply shifter
answer
factors that create a change in the supply of an item
question
Progressive Tax
answer
tax rate increases along with income
question
Proportional Tax
answer
stays the same as income increases
question
Regressive Tax
answer
a tax that tends to take a larger percentage of the incomes of lower income citizens than it takes from the incomes of higher income citizens.