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