Chapter __1___ Vocabulary

Zvibleman

Name Joshua

AP Macro Economics

Date 8/27/11

Mr. Partello

Period 4

Key Terms and Concepts

Term

Definition

Examples

1 Economics

: the social science concerned with the

efficient use of scarce resources to achieve
the maximum satisfaction of economic wants

- humans have unlimited wants,

but unlimited resources. The
economy provides these wants
and needs.

2 Economic

economic way of thinking

-scarcity, choice, rational

behavior

3 Utility

: pleasure, happiness, or satisfaction

- allocate time, energy, and

money to maximize their wellbeing.

4 Marginal

extra, additional, a change in. Comparison

of marginal benefits and marginal costs.

- decisions involve changes in the

status quo each option involves
marginal benefits because of
scarce resources, and marginal
costs.

observation, hypothesis, test/experiment,

modify hypothesis, continue testing
hypothesis.

- laws, principles, and models

enable the economist, like the
natural scientist to understand
and explain reality and to predict
the various outcomes of a
particular actions
theories and principles bring
order and meaning to facts by
arranging them in cause-andeffect order.

Perspective

Analysis

5 Scientific

Method

6 Theoretical

Economics

Generalizations

8 Principles

systematically arrange facts, interpret them,

and generalize from them.

: economic theories, principles, and laws.

Economic principles are expressed as the
tendencies of typical or average consumers,
worker, or business firms
statements about economic behavior or the
economy that enable prediction of the
probable effects of certain actions.

when economists say that

consumer spending rises when
personal income increases, they
are well aware that some
households may save all of an
increase in their incomes
- they are supported by facts
concerning how individuals and
institutions actually behave in
producing, exchanging, and
consuming goods and services

9 Other-things-

: CETERIS PARIBUS (in use to construct

their generalizations) assumption all other
variables except those under immediate
consideration are held constant for a
particular analysis

consider the relationship

between the price of Pepsi and
the amount of it purchased.

recognizes that theories and data can be

used to formulate policies-courses of action
based on economic principles and intended
to resolve a specific economic problem or
further an economic goal.

- you may read in the newspaper

that the Federal Reserve has
reduced interest rates in increase
private spending and prevent a
recession

11 Trade offs

in order to achieve one, we must sacrifice

another.

12

Macroeconomic

examines either the economy as a while or

its basic subdivisions or aggregates.

efforts to reduce income

inequality may weaken
incentives to work, invest ,
innovate, and take business risks,
all of which promote economic
growth
government, household, and
business sectors

13

specific economic units

while the problem of

unemployment is usually treated
as a macroeconomic topic
(because unemployment relates
to aggregate spending),
economists recognize that the
decisions made by individual
workers in searching for jobs and
the way specific product and
labor markets operate are also
critical in determining the
unemployment rate.

14 Aggregate

a collection of specific economic units

treated as if they were one unit.

- we might lump together the

millions of consumers in the US
economy and treat the as if they
were one huge unit called
consumers.

15 Positive

facts and cause-and-effect relationships,

avoids judgment.

description, theory development,

and theory testing (theoretical
economics)

incorporate value judgments about what the

economy should be like or what particular
policy actions should be recommended to
achieve a desirable goal.

at the desirability of certain

aspects of the economy.

equal
assumption

10 Policy

Economics

Microeconomic

economics
16 Normative

economics

17Fallacy of

composition

what is true for one individual or part of a

whole is not necessarily true for a group of
individuals or the whole.

you are at a football game and

the home team makes an
outstanding play. In the
excitement, you leap to your feet
to get a better view. A valid
statement: If you, an individual,
stand, your view of the game is
improved. but this is also true
for the group- for everyone
watching the play? Not
necessarily. If everyone stands to
watch the play, probably nobodyincluding you- will have a better
view than when all remain
seated.

18After this,

post hoc, ergo propter hoc

faulty reasoning

therefore
because of this
fallacy
19

20

21