Macroeconomics 1.1

Marginal analysis

making decisions based on increments

Investment

money spent by businesses to improve their production

Opportunity cost

most desirable alternative given up when you make a choice

Consumer goods

goods created for direct consumption

Capital goods

goods created for indirect consumption (used to make consumer goods)

Physical capital

any human-made resource that is used to create other goods and services

Human capital

any skills or knowledge gained by a worker through education and experience

Policy economics

applying theories to fix problems or meet economic goals

Ceteris paribus

hold everything else constant

Labor

any effort a person devotes to a task for which that person is paid

When the marginal cost exceeds the marginal benefit

At what point does something become irrational?

Land, labor, capital, and entrepreneurship

What are the 4 factors of production?

1. Society has unlimited wants and limited resources, 2. Choices must be made due to scarcity and every choice has a cost, 3. Everyone acts in their own "self-interest", 4. Everyone makes decisions on the margin, and 5. Real life situations can be explained/analyzed through simplified models/graphs

What are the 5 key economic assumptions?

Productivity

a measure of efficiency that shows the number of outputs per unit of input

Marginal

additional

Land

all natural resources used to produce goods and services

Trade-offs

all the alternatives we give up when we make a choice

Entrepreneurship

ambitious leadership that combine the other factors of production to create goods and services

Allocate

distribute

Utility

satisfaction

Economics

social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants (study of how individuals, firms, and governments deal with scarcity)

Entrepreneur

someone who takes initiative, innovates, and acts as a risk bearer so they can obtain a profit

Positive statements

statements based on facts; avoids value judgements

Normative statements

statements involving value judgements

Microeconomics

study of small economic units like individuals, firms, and markets; deals with supply and demand in specific industries, production costs, and labor markets

Macroeconomics

study of the large economy as a whole or economic aggregates; deals with economic growth, government spending, inflation, unemployment, and international trade

Price

the amount a buyer/consumer pays

Cost

the amount a seller pays to produce a good

Theoretical economics

using the scientific method to make generalizations and abstractions to develop theories