Economic Fallacies & Logic
A hypothesis that has been proven false but is still accepted by many people because it appears, at first glance, to make sense
What is a fallacy?
The utility or value of the highest-ranked alternative given up or sacrificed when making a choice
What is Opportunity Cost?
Output combinations located directly on the boundary line of the Production Possibilities Curve represent this state of resource usage
What is efficient production?
An outward shift of the entire Production Possibilities Curve illustrates this major long-term economic goal
What is Economic Growth?
Tangible items manufactured for direct personal use and immediate satisfaction by households, such as food or clothing
What are Consumer Goods?
The mistaken belief that what is good for an individual is automatically good for the whole group or society
What is the Fallacy of Composition?
The cost of producing one item expressed specifically in terms of the number of another item that must be given up
What is Relative Cost?
Points plotted inside the Production Possibilities Curve represent attainable output combinations where resources are in this condition
What is inefficient?
he PPC is bowed outward (concave) from the origin because resources are specialized, giving rise to this economic law
What is the Law of Increasing Relative Cost (or Law of Increasing Opportunity Cost)?
Manufactured items used by businesses to produce other goods and services, such as machinery, tools, and factories
What are Capital Goods?
Also known as the "cause-and-effect" fallacy, this occurs when someone mistakenly assumes that because one event happened before another, the first event caused the second
What is the Post Hoc Fallacy?
This economic law states that individuals and countries can maximize productivity by focusing on producing goods where they hold a comparative advantage.
What is the Law of Specialization?
Output combinations lying outside the Production Possibilities Curve line are classified as this under current conditions
What is unattainable?
A Production Possibilities Curve will be a straight line rather than bowed outward when opportunity costs are in this condition
What is constant
The graphic relationship where two economic variables move in opposite directions—meaning as one variable increases, the other decreases
What is an Inverse Relationship?
The reasoning error caused by oversimplifying a complex event so that it is attributed to one reason rather than multiple factors
What is the Fallacy of Single Causation?
If it takes you 40 minutes to mow a lawn and 30 minutes to trim a hedge, the opportunity cost of spending 4 full hours mowing lawns is this many houses worth of hedge trimming
What is 8 houses worth of hedge trimming?
The downward (negative) slope of the PPC illustrates that when resources are fully utilized, producing more of Good A requires this trade-off
What is producing less of Good B?
A sudden surge in consumer demand or a popularity trend for a good causes this specific change to the position of the PPC
What is no shift of the PPC?
The graphic relationship between two economic variables where they move in the same direction—meaning as one variable increases, the other variable also increases
What is a Direct Relationship
The essential Latin term in economic reasoning that translates to "all other things remaining unchanged" or held constant
What is Ceteris Paribus?
In a 4-hour work shift (240 minutes) for a lawn care business, Jordan takes 20 minutes to mow a lawn and 60 minutes to trim a hedge; the opportunity cost if Jordan spends the entire 4 hours trimming hedges is sacrificing this many mowed lawns
What is 12 mowed lawns?
Name two of the four core assumptions required for the standard Production Possibilities Curve model
What are: (1) Only two products produced, (2) Fixed resources and technology, (3) Full employment of resources, or (4) Short time period (ceteris paribus)?
This economic law describes the eventual decline in the additional output produced when one input is continuously increased while all other inputs remain fixed.
What is the Law of Diminishing Returns?
According to economic methodology, after a hypothesis or inquiry is systematically tested and proven (using tools like the Decision Matrix), it transitions into one of these
What is an Economic Principle, Law, or Theory