Economics ch1/2

Explain and give textbook example when analyzing the difference between evaluating how the standard of living of a country can be affected by Rich natural resources

As seen by economists, land is far more than real estate. It means all of the "gifts of nature" that are used to produce goods and services. These gifts include such familiar natural resources as air, soil, minerals, water, forests, plants, animals, birds, and fish The value of natural resources depends on someone knowing how to plug them into the production process. There is a strong correlation, or relationship, between a country's level of human capital and its standard of living. In contrast, the correlation between a country's natural resources and living standards is weak. This explains why a country like Japan, which is poor in resources but rich in human capital, is among the world's wealthiest nations, while Nigeria, which is rich in oil but poor in human capital, is among the poorest.

Why may graphs not yield a complete economic picture?

As useful as graphs are at representing relationships, they have their limitations. The graphs in Figure 1.4 do not, for example, shed light on factors other than education that might have affected income in 2010. Suppose an unusually harsh winter had slowed construction projects and delayed spring planting across the country that year. The impact of such a slowdown would have fallen most heavily on construction workers and farmworkers, many of whom lack college degrees. As a result, their 2010 incomes would have been lower than usual for reasons quite unrelated to education.

"ceteris paribus" and its value in models

Ceteris paribus: the assumption, used in economic models, that all factors other than those being considered remain the same; from a Latin expression meaning "other things being equal"

Why do economists use graphs?

Economists use two-dimensional graphs to simplify the complex, three-dimensional world in which we live. Because it is a simplification, a graph may not yield a complete picture of how two sets of information are related. Nonetheless, it gives economists an important tool for examining the relationship.

What are the 4 factors of production? Explain each and give a textbook example

Land, Labor, Capital, Entrepreneurs land: all the natural resources, including energy, that are used to produce goods and services; one of the factors of production labor: the time and effort people devote to producing goods and services in exchange for wages; one of the factors of production human capital: the knowledge and skills people gain from education, on-the-job training, and other experiences entrepreneur: a person who assembles and organizes the resources necessary to produce goods and services

Define the law of diminishing marginal utility, explain and give 2 textbook examples

Note that in the video-game-purchase scenario, you were not facing an all-or-nothing, "buy the game or do without" decision. Instead, you were employing the thinking-at-the-margin principle by looking at the marginal utility of one purchase alternative over another. One alternative in the scenario left you with more time compared to the others. Another left you with more money. marginal utility: the extra satisfaction or pleasure achieved from an increase of one additional unit of a good or service Suppose you are so thirsty after a workout that you buy yourself a large bottle of apple juice. The first glass provides you with a high level of utility by quenching your thirst. The second glass is still satisfying, but its marginal utility is less because you are no longer so thirsty. The third or fourth glass has less utility as your thirst disappears and your stomach fills up. The fifth glass, should you go on drinking, might have a negative utility by making you feel sick.

Thoroughly list/explain (citing TB examples) the 7 principles that guide economic way of thinking

Principle 1: Scarcity Forces Tradeoffs -recognizes that although our desires for things are unlimited, the resources needed to fulfill our desires are scarce. Ex: no-free-lunch principle: the idea that every choice involves tradeoffs; a restatement of the scarcity-forces-tradeoffs principle] . This name stems from the observation that every choice—even that of accepting a free lunch—involves tradeoffs. Even if the lunch was free to you, someone had to pay for the meal. And in making that choice, that someone had to go without something else. Looked at in this way, there is no such thing as a "free" lunch. Principle 2: Costs Versus Benefits - costs-versus-benefits principle: the idea that people choose something when the benefits of doing so outweigh the costs Ex: For example, what are the costs of sleeping an hour longer on a school day? Would you not take a hot shower? Would you lose out on study time? What benefits might you gain? Would you get needed rest or have more energy? A rational choice is one in which the benefits are greater than the costs. Principle 3: Thinking at the Margin - thinking-at-the-margin principle: the idea that many decisions involve choices about using or doing a little more or a little less of something rather than making a wholesale change Ex: Suppose you have just spent two hours studying for an economics test. Should you study another hour or go to bed? The answer depends on whether you think the marginal benefit of the extra hour of sleep—maybe doing a bit better on the test—will exceed the marginal cost of that hour—perhaps being less well rested for the test. Principle 4: Incentives Matter - incentives-matter principle: the idea that people respond to incentives in generally predictable ways Ex. Why, for example, would hundreds of people stand in line on a city sidewalk in the heat of summer for several hours just to get a concert ticket? Certainly they would not behave this way without some sort of powerful incentive. Principle 5: Trade Makes People Better Off trade-makes-people-better-off principle: the idea that people benefit by focusing on what they do well and then trading with others, rather than trying to do everything for themselves Ex: Your road trip gives you a firsthand appreciation of this principle when you run into car trouble. One morning, you turn the key and nothing happens. Neither you nor your friend is a mechanic, so you push the car to the nearest gas station and look for help. The mechanic on duty quickly diagnoses the problem as a dead battery. You offer to trade your two tickets for that night's concert for a new battery. The mechanic agrees, and your car is soon running again. You are disappointed about missing the concert, but everyone involved agrees that trading the battery for the tickets makes you all better off than you were that morning. Principle 6: Markets Coordinate Trade - markets-coordinate-trade principle: the idea that markets are usually the best way to coordinate exchanges between buyers and sellers Ex: On your road trip, you feel the invisible hand at work when you visit a supermarket. As you push your cart through the aisles, you see fresh mangos from Mexico, bananas from Belize, shrimp from Thailand, cheese from France, and salmon from Alaska. You wonder how a grocery store manages to stock its shelves with so many fresh foods from around the world at prices you are willing to pay. The answer is simple: markets coordinate trade with remarkable efficiency. Principle 7: Future Consequences Count- future-consequences-count principle: the idea that decisions made today have effects in the future Ex: Part of thinking like an economist involves trying to imagine all the possible consequences of a decision. But nothing about doing this is easy. Consider a law passed in 1968 in Vermont that banned roadside billboards and other large signs in order to protect the state's scenic beauty. Since then, businesses have instead built sculptures, including a giant squirrel in red suspenders and a 19-foot-high genie, to attract the attention of passersby. The result of the Vermont law was an example of what economists call the law of unintended consequences. This law says that actions of people and governments always have effects that are not expected, or that are "unintended." Economists spend much of their time trying to predict these unintended consequences.

What determines the quality of labor available in the country?

The quality of that labor depends on how skilled these workers are, or what economists refer to as human capital

What determines the quantity of labor available in a country

The quantity of labor available in a country depends on the size of its population and people's willingness to work.

Explain and give textbook example when analyzing the difference between evaluating how the standard of living of a country can be affected by human capital

The quantity of labor available in a country depends on the size of its population and people's willingness to work. The quality of that labor depends on how skilled these workers are, or what economists refer to as human capital. human capital: the knowledge and skills people gain from education, on-the-job training, and other experiences

Question on figure 1-4- what can you conclude from the data

You can conclude the more years that you attend school the higher level of median annual income

Explain the difference when evaluating a PPF that is a straight vs curved line

curve - production possibilities curve: a graph showing the combinations of two goods that can be produced with a given set of resources, This line is also called the production possibilities frontier because it represents the best that this economy can do with its current factors of production. line - production possibilities frontier: a simple model of an economy that shows all the combinations of two goods that can be produced with the resources and technology currently available] (PPF) is an economic model, in the form of a line graph, that shows how an economy might use its resources to produce two goods. The graph shows all possible combinations of those goods that can be produced using the available resources and technology fully. It also helps us see the tradeoffs involved in devoting more resources to the production of one good or the other

Define Economic Enigmas and give 2 Textbook Examples

economic enigma: a puzzle or riddle that may be explained through economic analysis Some of the mysteries that Landsburg refers to are large and abstract. For example, why does an economy grow for a long time and then start to shrink? Others deal with smaller, everyday enigmas that an ordinary person might wonder about. For example, one question Landsburg pursues is, why does popcorn sold at the movies cost more than at a grocery store? Another is, why are so many products sold for $2.99 and so few for $3.00?

Define Model

economic model: a simplified representation of reality that allows economists to focus on the effects of one change at a time

Explain by definition the study of economics

economics: The study of how people choose to use their limited resources to satisfy their unlimited wants

Define Graph

graph: a visual representation of the relationship between two sets of data

Adam Smith's principles (the invisible hand) in his influential book written in 1776

invisible hand: Adam Smith's metaphor to explain how an individual's pursuit of economic self-interest can promote the well-being of society as a whole

macroeconomics

macroeconomics: the study of the workings of the economy as a whole

microeconomics

microeconomics: the study of the economy at the level of individuals, households, and businesses

Define opportunity cost and give/explain 2 good textbook examples

opportunity cost: the value of the next best alternative that is given up when making a choice; a measure of what you must give up to get what you want Mick Jagger's decision. His opportunity cost of pursuing a singing career was the future utility of the college degree he never earned the opportunity cost of the automobile company that decided to produce only trucks was the money it would have made by continuing to produce cars

Explain by Definition/TB example the difference between normative/positive economics

positive economics: the branch of economics that uses objective analysis to find out how the economy actually works normative economics: the branch of economics that makes value judgments about the economy; its focus is on which economic policies should be implemented ex: Question 1: What impact will increased enrollment, salary increases, and rising maintenance costs have on next year's budget? To answer the first question, the economic analyst would gather facts about the number of new classes needed to cope with rising enrollment, the salaries of school employees, maintenance costs, and other expenses. This type of analysis, which describes how things are, is known as positive economics Question 2: What actions should we take now to reduce expenses in order to balance next year's budget? To answer the second question, the economic analyst would not only gather facts but also analyze the various choices the school board has for cutting costs.This type of analysis, which focuses on how things ought to be done, is known as normative economics

What is the value of the PPF to economic thinking?

production possibilities frontier: a simple model of an economy that shows all the combinations of two goods that can be produced with the resources and technology currently available

perpetual, renewable, and non-renewable resources (know textbook examples)

renewable resource: a natural resource that, with careful planning, can be replaced as it is used; examples include forests and fresh water perpetual resource: a natural resource that is widely available and in no danger of being used up; examples include sunlight and wind nonrenewable resource: a natural resource that cannot be replaced once it is used; examples include oil and coal

Define Shortage/ Surplus

shortage: a lack of something that is desired surplus:

What are the 3 purposes/principles illustrated in this model that make this model valuable to economics?

shows how an economy might use its resources to produce two goods hows all possible combinations of those goods that can be produced using the available resources and technology fully helps us see the tradeoffs involved in devoting more resources to the production of one good or the other