Microeconomics Chapter 1
what is an assumption?
1. all facts of production are held constant 2. all resources are fully employed and efficiently use 3. the existing technology is fixed 4. only 2 goods
what is recognize the problem?
1st step to scifi method. it is when you identify an issue ex) unemployment
wat is make assumptions?
2nd step to scifi method. it reduces the complexity statements accepted as true. to simplify the problem at hand
what is development of a theory/model?
3rd step to scifi method. is a simplification to explain an event
what is makes predictions?
4th step to scifi method. It predicts human behavior. What does the method tell us.
what is test the result?
5th step to scifi method. Does the model/theory make accurate predictions.
What is positive analysis?
It is an analysis of "what is" - no value judgments or individual opinion - can be verified by facts ex) 2+2=4, or if you increase income taxes people have less disposable income
Goods/Services
It is produced to satisfy unlimited wants.
what is ceteris paribus?
all other variables held constant. (----)
Economic good?
any item that you would pay to have. like a house/ car etc
financial capital
consists of bonds/stocks/cash
what is land/natural resources?
consists of land for farming, mineral deposits, water for fishing etc. they all help in the production of g/s
economic capital
consits of machines factories etc
What are 2 common mistakes made in economic analysis?
fallacy of composition, fallacy of association as causation
Economics
is a social science that studies how people and society allocate scare resources to satisfy unlimited wants. It is a struggle between unlimited wants and limited resources
what is capital?
is machinery and equipment used to manufacture g/s
what is labor?
is the human effort both physical and mental to help in the production of goods.
What is negative analysis?
it is an analysis of "What ought to be" -contain's value judgments -phrases that contain "should" ex) a law should be enacted to stop people from buying foreign cars
what is choice?
it is the act of selecting amond the alternatives. Ex) more health care or more housing?
what is microeconomics?
it is the study of the economy at indivdual level. -studies how firms maximizes profit -looks at the prices of a specific product -examines indivudual tree not forest
What are the 4 resource payments?
labor ---- wages, land----rent, capital---- interest payment----- entrepreneur----profits.
What are the four productive resources
labor, land, capital, entrepreneur
What is the rational self interest theory?
means that people will make choices that, at the time and with the information they have will give them the greatest amount of satisfaction. *****Weighing the benefits and costs ex) going to college/not going to college
What are 2 types of analysis?
positive and normative analysis.
What are the 5 steps to the scientific method
recognize the problem. make assumptions, developments of a theory/model, make predictions, test the result.
what is macroeconomics?
the study of the economy as a whole - inflation, unemployment, GPD -examines the forest, not the tree.
what is an entrepreneur?
they take the 3 productive resources and produce G/S ex Bill Gates
Economic Bad?
things you pay to get rid off. Like garbage/ divorce/ disease
what is scarcity?
unlimited wants and limited resources. It is the condition of being in limited supply. The relationship of how much their is and how much is wanted.
What is association as causation?
The mistaken assumption that because 2 events seem to occur together, one event causes the other. ex) wash your car/ it rains.
what is fallacy of composition?
the mistaken assumption that applies in the case of one applies to the case of many ex) because a car has good brakes, therefore it is a good car
what is economic model?
the production possibility curve, which shows the various amounts of 2 goods that an economy can produce with full employment