economics

ceteris parbus

"all else equal"

positive analysis

"what is" - economics mainly consists of this

normative analysis

"what ought to be"

economics is a social science because:

- it considers human behavior (particularly decision-making) - applies scientific method AND - is based on studying actions of individuals

law of supply

-there is a positive relationship between price and quantity supplied -as price increases, firms will supply more of a product

3 fundamental questions trade-offs force society to answer:

1. what goods and services will be produced? 2. how will goods and services be produced? 3. who will receive goods and services produced?

When we graph the relationship between two variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing so, however, can lead to incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include:

BOTH - an emitted variable - reverse casuality

Microsoft charges a price of $599 for Windows 7. Is this pricing decision rational?

When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality

household

consists of all individuals in a home

macroeconomics

covers topics such as inflation and unemployment

PPF

curve showing maximum attainable combinations of two products that may be produced w available resources and current technology

circular flow model

economic model, shows how participants in markets are linked

free market

exists when the government places FEW restrictions on how a good can be produced or sold or on how a factor of production can be employed

equity

fair distribution of economic benefits

productive efficiency

good produced at lowest possible cost

opportunity cost

highest valued alternative that must be given up to engage in an activity

point below the ppt curve

inefficient use of resources

economics

is the study of the choices people make to attain their goals, given their scarce resources

scarcity

people must make choices as they try to attain their goals

allocative efficiency

production is in accordance with consumer preferences

comparative advantage

refers to the ability to produce a good at a lower opportunity cost

absolute advantage

refers to the ability to produce more of a good or service using the same amount of resources

movement from top to bottom of PPF

shows increasing marginal opportunity costs

entrepreneur

someone who operates a business, bringing together the factors of production (labor, capital, and natural resources) to produce goods and services

firms

suppliers of goods and services

when the federal government crafts economic policies that make it less expensive for firms to follow green initiatives:

the policies are consistent with economic incentives

property rights

the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it

Microeconomics

the study of how firms and households make choices, how they interact in markets, and how the government attempts to influence their choices

law of demand

there is an inverse relationship with price and quantity demanded