Chapter 1 Introduction: What Is Economics?

Variable

A measure of something that can take on different values

Economin model

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

Marginal change

A small, one unit change in value

Positive analysis

Answers the question "What is?" or "What will it be?"

Normative analysis

Answers the question "What ought to be?"

Physical capital

Equipment

Labor

Physical and mental effort people use to produce goods and services

Natural resources

Produced by nature

What institutions play key roles in economic growth?iii

Regulatory and legal

Scarcity

Resources are limited

Ceteris paribus

The Latin expression meaning that other variables are held fixed

Entrepreneurship

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

Human capital

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

Factors of production

The resources used to produce goods and services

Economics

The study of choices we make when there is scarcity

Microeconomics

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

Macroeconomics

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

What are the three basic questions a society must answer?

What products do we produce? How do we produce the products? Who consumes the products? (What, how, who)