Chapter 1: Introduction; What is Economics?

Variables

A measure of something that can take on different value.

Economic Model

A simplified representation of an economic environment, often employing a graph.

How do we produce the products?

Alternative means of production are available.

Market

An arrangement that allows buyers and sellers to exchange things.

Rational Choice

Assuming people act in their own best interest to make the best decision.

Simplifying

Focus on the most important variables. Simplify the problem.

In a modern market economy, most of the answers to the questions of what to produce, how to produce it, and who should get the production are made by

Individual and firms.

In which of the following markets is a person's time and effort exchanged for money?

Labor Market

Ceteris Paribus

Latin expression meaning the other variables are fixed.

Factors of Production

Natural Resources, Labor, Physical Capital, Human Capital, Entrepreneurship.

Scarcity

No enough resources to have everything we want.

Labor

Physical and Mental efforts people use to produce goods and services.

Positive Analysis

Predicts the consequences of alternative actions by answering "What is?" or "What will be?". What is happening

Natural Resources

Provided by nature. Ex: fertile land, oil and gas deposits.

Physical Capital

Stock of equipment, machines, structures, and infrastructures used to produce goods.

Isolate Variables

Study one variable and hold the other constant.

Economics

The study of making choices with scarce resources. Choices are made in markets and better choices produce higher standards of living.

Macroeconomics

The study of nation's economy as a whole. Focuses on the issues of inflation, unemployment and economic growth.

A student has a D grade average in her accounting course and a B grade average in her economics course. She decides to study an extra hour for her accounting exam and one less hour for her economics exam hoping to improve her accounting grade while not hurting her economics grade. This is an example of?

Thinking at the Margin

What products do we produce?

Trade-offs will exist.

The recent experience of sub-Saharan Africa has taught economists that institutions such as the legal system and the regulatory environment play a key role in economic growth.

True

Who consumes the products?

We must decide how to distribute the products to society.

Normative Analysis

What should be happening.

Marginal Change

When the key variable changes by 1 unit.

The worldwide recession in 2007 started from

easy access to credit, booming housing prices that ultimately dropped, and a large number of home purchasers who were unable to afford their homes.

Entrepreneurship

effort used to coordinate the factors of production to produce and sell products.

Human Capital

knowledge and skills acquired by a worker through education and experience.

Microeconomics

the study of the choices made by households, firms and government and how these choices affect the markets for goods and services.