macroeconomics chapter 1 - exploring economics
shifting curves
GPA = 1.0 + 0.1H + Z
if not properly constructed incentives can lead to what?
Harmful outcomes
Scarcirty
Our unlimited wants clash with the limited resources leading to scarcity. everyone (rich or poor) faces scarcity because, at a minimum, out rime on earth is limited. economics focuses on the allocation of scarce resources to satisfy unlimited wants as fully as possible
incentives
The factors that motivate individuals and firms to make decisions in their best interest.
Economics
The study of how individuals, firms and society make decisions to allocate limited resources to many competing wants
simple linear equations
Y = a + bX
institutions include what?
a legal system to enforce contracts and laws to protect the rights of citizens and the ideas they create
normative question
a question whose answer is based on societal beliefs on what should or should not take place
what kind of a science is economics
a social science
economics is about making decisions on allocating limited resources in an attempt to maximize what?
an individual or society well being
Ceteris Paribus Assumption
assumptions are a way to simplify analysis - can then be extended in include constants
nearly all decisions made by individuals, firms, and governments in pursuit of an objective or goal can be understood through
benefits costs, trade-offs and regulation
what does stylized mean in economics
boiling down facts to their basic and relevant elements
computing the slope of a nonlinear curve
dc/bc or [(3.8-3.3) / (10-7)]
what makes economic policy making challenhing
different opinions about the relative1 weights of benefits and costs
what is the key to higher economic standards of living?
economic growth
when unemployment of inflation is too high
economic growth can be inhibited
principle 7: what economic goals do not always coincide
economic growth, unemployment, and low inflation
what are the two persistent economic obstacles that naturally occur in the economy
employment and unemployment
how can economic growth be measured ?
estimating the change in a country's real gross domestic income per ca pita and average household income, quality of education, infrastructure development, improvement in technology and innovation, environmental sustainability and poverty reduction
Principle three: specialization, for all involved, leads to
gains
Principle Four: people respond to incentives that are both
good and bad
production efficiency occurs when
goods are produces at the lowest possible cost
principle 6: markets are generally efficient but when they are not who can correct it
governments can sometimes correct the failure
if one is responding to a badly designed incentive it is called what?
greed
Efficiency
how well resources are used and allocated. do people get the goods and services they want at the lowest possible resource cost? this is the chief focus of efficiency
allocated efficiency occurs when
individuals who desire a product most get those goods and services
when unemployment is high
inflation is generally low
what are the goals of economic growth?
is fostered by policies set by government - including fiscal policy and monetary policy
how does economics help you think more cleary about everyday decisions
it shows you how the economy functions
correlation is not causation
just because two variables correlate strongly does not mean that one caused the other
what other topics does microeconomics extend into
labor laws, environmentalyes policy and health care policy
what kinds of numbers does macro deal with
large ones
principle one: economics is concerned with making choices with with what?
limited recources
what is the simple definition of economics
making choices
what is the key model of economic analysis
model building
what is done when models fail to explain reality?
new models are constructed
if the government intervenes can they always successfully intervene
no
is economics solely about money
no
when new products enter the market
old ones die out
trade offs- especially with ones time- can lead to better outcomes if:
one is bale to specialize in activities in which she or he is proficient
unemployment and inflation run
opposite of each other
times series
plotting time (seconds, minutes, hours, days) on the horizontal axis and the value of some variable on the vertical axis
when markets fail they fail in
predictable ways
what is the dynamic characteristics of markets?
price and profit
what illustrates the limits of economic activity?
production possibilities
rules for reading graphs
read the title, look at the label, horizontal axis (x axis), vertical axis (y axis),
often simple graphs reveal surprising
relationships between variables
bar charts
show the value of specific data points
what is the simple rule for computing slope?
slope is = rise over run. rise/run
pie charts
split into percentage parts
what is equally important as institutions?
the ability of societies to create ideas
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"
equity
the fairness of various issues and policies
what term did Adam smith coin?
the invisible hand
what generally keeps the economy in equilibrium
the market forces of supply and demand
Macroeconomics
the study of the broader issues in the economy such as inflation unemployment and national output of goods and services
Microeconomics
the study of the decision making by individuals, businesses and industries
opportunity cost
the value of the next best alternative; what you give up to do something or purchase something
principle 8: institutions and human creativity help explain what?
the wealth of nations
Principle 5: rational behavior requires what?
thinking on the margin
what are the main forms of graphs and data?
time series, scatter plots, pie charts and bar charts
what other sources our limited besides money?
time, knowledge, work ethic and anything else that helps us achieve out goals
principle two: when one is making decision what must one take into account
trade off and opportunity costs
when determining the best way to manage resources it often involves what?
trade-offs and opportunity costs
if the U.S. federal government raised interest rates what would come as a result
unemployment would rise
society thinking on the margin example would be
weather taxes should be raised a little to pay for other projects
in 2015 what decision did the U.S. Federal government face
weather to raise interest rates
can markets achieve efficiency without a central planner telling them what to buy or what firms can sell
yes
can the sum of opportunity cost sometimes outweigh the benefits?
yes
does every activity involve opportunity cost?
yes
will (virtually) every person be unemployed at some point in their life?
yes
is fairness and equity a subjective concept?
yes. Each individual has a different perception as to what is fair
what term did Harry S. Truman coin?
"give men a one handed economist! all my economists say 'on one hand...on the other...'"
what sentence is an example of opportunity cost?
"what could i be doing right now if i were not____" or "what could i have bought if i had not bought this____"
how many key economic principles are there?
8
scatter plots
A graph with points plotted to show a possible relationship between two sets of data.
positive question
A question that can be answered using available information or facts.
Who is the father of economics?
Adam Smith