Chapter 1: Introduction; What is Economics?
Variables
A measure of something that can take on different value.
Economic Model
A simplified representation of an economic environment, often employing a graph.
How do we produce the products?
Alternative means of production are available.
Market
An arrangement that allows buyers and sellers to exchange things.
Rational Choice
Assuming people act in their own best interest to make the best decision.
Simplifying
Focus on the most important variables. Simplify the problem.
In a modern market economy, most of the answers to the questions of what to produce, how to produce it, and who should get the production are made by
Individual and firms.
In which of the following markets is a person's time and effort exchanged for money?
Labor Market
Ceteris Paribus
Latin expression meaning the other variables are fixed.
Factors of Production
Natural Resources, Labor, Physical Capital, Human Capital, Entrepreneurship.
Scarcity
No enough resources to have everything we want.
Labor
Physical and Mental efforts people use to produce goods and services.
Positive Analysis
Predicts the consequences of alternative actions by answering "What is?" or "What will be?". What is happening
Natural Resources
Provided by nature. Ex: fertile land, oil and gas deposits.
Physical Capital
Stock of equipment, machines, structures, and infrastructures used to produce goods.
Isolate Variables
Study one variable and hold the other constant.
Economics
The study of making choices with scarce resources. Choices are made in markets and better choices produce higher standards of living.
Macroeconomics
The study of nation's economy as a whole. Focuses on the issues of inflation, unemployment and economic growth.
A student has a D grade average in her accounting course and a B grade average in her economics course. She decides to study an extra hour for her accounting exam and one less hour for her economics exam hoping to improve her accounting grade while not hurting her economics grade. This is an example of?
Thinking at the Margin
What products do we produce?
Trade-offs will exist.
The recent experience of sub-Saharan Africa has taught economists that institutions such as the legal system and the regulatory environment play a key role in economic growth.
True
Who consumes the products?
We must decide how to distribute the products to society.
Normative Analysis
What should be happening.
Marginal Change
When the key variable changes by 1 unit.
The worldwide recession in 2007 started from
easy access to credit, booming housing prices that ultimately dropped, and a large number of home purchasers who were unable to afford their homes.
Entrepreneurship
effort used to coordinate the factors of production to produce and sell products.
Human Capital
knowledge and skills acquired by a worker through education and experience.
Microeconomics
the study of the choices made by households, firms and government and how these choices affect the markets for goods and services.