scarcity -- a situation in which resources are limited in quantity and can be used in different ways
positive economics -- analysis that answers the questions, "what is?" Or "what will be?"
normative economics -- analysis that answers the question "what ought to be?"
variable -- a measure of something that can take on different values
ceteris paribus -- the Latin expression meaning other variables being held fixed
marginal change -- a small, one unit change in value
microeconomics -- the study of the choices made by households, firms, and government and of how these choices affect the markets for goods and services
macroeconomics -- the study of the nation's economy as a whole
Economics is about making choices when the options are limited. We use economic analysis to understand the consequences of our choices, as individuals, organizations, and society as a whole.
Positive analysis answers the questions "what is?" Or "what will be?"
Normative analysis answers the question "what ought to be?"
To think like an economist, we:
- use assumptions to simplify
- use the notion of ceteris paribus to focus on the relationship between two variables
- think in marginal terms
Rational people respond to incentives.
We use microeconomics to understand how markets work, make personal and managerial decisions, and evaluate the merits of public policies.
We use macroeconomics to understand why an economy grows, understand economic fluctuations, and make informed business decisions.
