Test by comparing actual outcomes to the hypothesized predictions. Individual units (household, firm or industry) and their decision making process. The analysis of facts to establish cause-and-effect relationships. The part of economics involving value judgments about what the economy should be like. 1. 6 production possibilities model and increasing opportunity costs. The last word: pitfalls to sound economic reasoning: biases. Loaded terminology: fallacy of composition, post hoc fallacy, correlation not causation. The right of private persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other property. Independently acting sellers and buyers operating in a particular product or factor market. Freedom of sellers and buyers to enter or leave markets, on the basis of their economic self-interest. The central government, along with the central bank, needs to take action if a market economy is experiencing recession or inflation. 2. 4 the demise of the command system: the coordination problem, the incentive problem.