econ2 - Economics: the study of how individuals and...

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Economics: the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided. Opportunity cost: the best alternative that we forgo, or give up, when we make a choice or a decision. Sunk costs: costs that cannot be avoided, regardless of what is done in the future, because they have already been incurred. Efficient market: a market in which profit opportunities are eliminated almost instantaneously. Microeconomics: the branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units – that is, business firms and households. Macroeconomics: the branch of economics that examines the economic behavior of aggregates – income, employment, output, and so on – on a national scale. Positive economics: an approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works. Normative economics: an approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics . Descriptive economics: the compilation of data that describe phenomena and facts. Economic theory: a statement or set of related statements about cause and effect, action and reaction. Ockham’s razor: the principle that irrelevant detail should be cut away. Post hoc, ergo propter hoc: literally, “after this (in time), therefore because of this.” A common error made in thinking about causation: If Event A happens before Event B, it is not necessarily true that A caused B. Fallacy of composition: the erroneous belief that what is true for a part is necessarily true for the whole. Empirical economics: the collection and use of data to test economic theories. Efficiency: in economics, allocative efficiency. An efficient economy is one that produces what people want at the least possible cost. Equity: fairness Economic growth: an increase in the total output of an economy. Stability: a condition in which national output is growing steadily with low inflation and full employment of resources. Factors of production: the inputs into the process of production. Another word for resources. Production: the process that transforms scarce resources into useful goods and services. Inputs or resources: anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants. Outputs: usable products. Theory of comparative advantage: Ricardo’s theory that specialization and free trade will benefit all trading parties, even those that may be absolutely more efficient producers. Absolute advantage: a producer has an absolute advantage over another in the production
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This note was uploaded on 04/29/2008 for the course ECON 2 taught by Professor Hou during the Spring '07 term at UCLA.

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econ2 - Economics: the study of how individuals and...

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