Review glossary

In summary

Economics is a social science that studies the way society allocates its available resources in the production of goods and services consumed by people. Economics and the subject matter of economics, touches our lives daily. If we shop for groceries, go to work, or pay taxes, economics can help us to better understand our world.

Macroeconomics is the study of entire economy. Microeconomics is the study of parts of the economy. While they view the economy from different perspectives, both are important.

Scientific theories are used to explain economic activity in the world. The theories consist of sets of economic principles that abstract from the real world, similar to the way a road map abstracts from the world. A principle is obtained by continuously testing a hypothesis to see if it corresponds to activity in the world.

Positive economics describes the way the world actually operates, and normative economics suggests how the world should operate. Positive economics is based on testable hypothesis, which can be proved false. Normative economics is based on an individual’s values, which cannot be proved either right or wrong.

The economist seeks to identify the benefits and costs of any activity. Since marginal changes in benefits and costs from an activity are the basis for most choices, such changes tend to attract the economist’s attention. Economists also use economic theories to recommend policies to the government.

Review glossary.

Allocation. The process of distributing resources for the production of goods and services, and for distributing goods and services for consumer goods.

Economics. A social science that studies the allocation of resources to the production of goods and services used to satisfy consumer’s unlimited wants and needs. As a social science economics studies the social relationship of individuals. But unlike other social sciences, economics consentrates its study on the economy.

Economy. A system of production, distribution, and consumption of goods and services.

Efficiency. The process of obtaining the highest level of consumer satisfaction from the available resources.

Macroeconomics. The branch of economics that studies the entire economy. Macroeconomics examines such topics as the total amount of output in economy, the rate of inflation and the number of unemployed workers.

Microeconomics. The branch of economics that studies parts of the economy. Microeconomics examines the individual consumers, business, and industries that make up the economy.

Normative economics. A branch of economics that states the way the economy should operate. A normative statement is based on values and cannot be proved right or wrong.

Positive economics. A branch of economics that tries to explain the way the economy actually operates. Positive economics is concerned with the process of testing hypotheses. A positive statement can be refuted by looking at the real world.

Resources. The materials available to an economy for the production of goods and services.

Scarecity.. The condition that exists when there is an insufficient quantity of resources to produce all of the goods and services desired by people.

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