chapter 1 macroeconomics

How do I distinguish between movements along and shifts in a curve?

A change in one of the variables shown on either of the coordinate axes of the graph causes movement along a curve. A change in a variable not shown on one of the coordinate axes of the graph causes ashift in a curve's position on the graph.

What is capital?

A human-made good used to produce other goods and services

What is an entrepreneur?

A motivated person who seeks profits by undertaking risky activities such as starting new businesses, creating new products, or inventing new ways of accomplishing tasks

What is an inverse relationship?

A negative association between two variables. When one variable increases, the other variable decreases, and when one variable decreases, the other variable increases.

What is a direct relationship?

A positive association between two variables. When one variable increases, the other variable increases, and when one variable decreases, the other variable decreases.

What is a model?

A simplified description of reality used to understand and predict the relationship between variables

What conclusion can we make regarding the ceteris paribus assumption?

A theory cannot be tested legitimately unless its ceteris paribus assumption is satisfied.

How is a three-variable relationship depicted?

A three-variable relationship is depicted by a graph showing a shift in a curve when the ceteris paribus assumption is relaxed and a third variable (such as annual income) not on either axis of the graph is allowed to change.

What is an independent relationship?

A zero association between two variables. When one variable changes, the other variable remains unchanged.

How is it determined whether a statement is positive?

Accuracy is not the criterion for a statement to be positive. The key consideration is whether the statement is testable and not whether it is true or false.

What is normative economics?

An analysis based on subjective value judgments

What is positive economics?

An analysis limited to statements that are verifiable

What is land?

Any natural resource provided by nature that is used to produce a good or service

What are renewable resources?

Basic inputs that nature can automatically replace, such as crops, clean air, and the water and fish in lakes

What is private capital?

Capital that is owned by private companies; consists of factories, office buildings, warehouses, robots, trucks, and distribution facilities

What is public capital?

Capital that is provided by government through taxes and is collectively owned; consists of roads, bridges, dams, airports, harbors, and public universities and other government buildings

What are two of the most common pitfalls to clear thinking?

Failing to understand the ceteris paribus assumption, Confusing association and causation

What conclusion can we make when testing a theory?

If the evidence supports the theory, the conclusion is to accept the theory; if not, the theory should be rejected.

What does scarcity force us to do?

It forces us to make choices.

What is the purpose of the ceteris paribus assumption?

It holds everything else constant and therefore allows us to concentrate on the relationship between two key variables.

Why is money not a resource?

Money by itself does not produce goods and services; instead, it is only a means to facilitate the purchase and sale of resources and consumer products.

What are the two categories of natural resources?

Renewable Nonrenewable

What are resources?

The basic categories of inputs used to produce goods and services

What is microeconomics?

The branch of economics that studies decision making by a single individual, household, firm, industry, or level of government

What is macroeconomics?

The branch of economics that studies decision making for the economy as a whole

What is scarcity?

The condition in which human wants are forever greater than the available supply of time, goods, and resources

What is entrepreneurship?

The creative ability of individuals to seek profits by taking risks and combining resources to produce innovative products

What conclusion can we make regarding association versus causation?

The fact that one event follows another does not necessarily mean that the first event caused the second event.

What is labor?

The mental and physical capacity of workers to produce goods and services

What conclusion can we make about scarcity and choice?

The problems of scarcity and choice are basic economic problems faced by every society. unlimited wants, scarcity, society chooses.

What is slope?

The ratio of the change in the variable on the vertical axis (the rise or fall) to the change in the variable on the horizontal axis (the run)

What is economics?

The study of how society chooses to allocate its scarce resources to the production of goods and services to satisfy unlimited wants

What is the purpose of an economic model?

To forecast or predict the results of various changes in variables

Why do economists disagree?

When disagreements exist, the reason can often be explained by the difference between positive economics and normative economics.

What conclusion can we make regarding normative economics?

When opinions or points of view are not based on facts, they are scientifically untestable.

what problem can occur with association versus causation?

When you read more into a relationship between variables than is actually there

Three Categories of Resources

land, labor, capital

How is the slope of a straight line computed?

slope= rise/run=change/change