# Chapter 1: Thinking Like an Economist

 the study of how people make choices under conditions of scarcity and of the results of those choices for society. Economics someone with well defined goals who tries to fulfill those goals as best he or she can. Rational Person the economic surplus from taking any action is the benefit of taking that action minus its cost. Economic Surplus the opportunity cost of an activity is the value of what must be forgone in order to undertake the activity. Opportunity Cost a cost that is beyond recovery at the moment of decision must be made. Sunk Cost the increase in total cost that results from carrying out one additional unit of an activity. Marginal Cost the increase in total benefit that results from carrying out one additional unit of an activity. Marginal Benefit the total cost of undertaking n units of an activity divided by n. Average Cost the total benefit of undertaking n units of an activity divided by n. Average Benefit one that sayd how people should behave. Normative Economic Principle one that predicts how people will behave. Positive Economic Principle the study of individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets. Microeconomics the study of the preformance of national economies performance of national economies and the policies that governments use to try to improve that performance. Macroeconomics a mathematical expression that describes the relationship between two or more variables. Equation a quantity that is free to take a range of different values. Variable a variable in an quation whose value is determined by the value taken by another varible in the equation. Dependent Variable a variable in an equation whose value determines the value taken by another varible in the equation. Independent Variable a quantity that is fixed in value. Constant (or Parameter) in a straight line, the value taken by the dependent variable when the independent variable equals zero. Vertical Intercept in a straight line, the ratio of the vertical distance the straight line travels between any two points (rise) to the corresponding horizontal distance (run). Slope although we have boundless needs and wants, the resources available to us are limited so having more of one good thing usually means having less of another. The Scarcity Principle (also called the No - Free - Lunch Principle) an individual (or a firn or a society) should take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs. The Cost - Benefit Principle  a person (or a firm or a society) is more likely to take an action if its benefit rises, and less likely to take it if its cost rises, inshort, incentives matter. The Incentive Principle AuthorAmandaWelsh ID168874 Card SetChapter 1: Thinking Like an Economist DescriptionChapter 1 Economics Vocab Updated2012-09-04T15:19:21Z Show Answers