Econ 1100

The graph of a negative, or inverse, relationship between two variables is

A line that slopes downward to the right

In the circular flow of economic activity

1. Firm supply final goods and services to output markets in exchange for sales revenue 2. household supply factors of production and resource market in exchange for income

Economic factors of production

1. Land includes all natural resources used in production 2. Labor is physically and mental talents of people apply to production 3. Entrepreneurs are the risk takers and innovators who combine inputs to produce an output

independent variable

Can change freely

To understand the relationship between two specific variables, economic just use the

Ceteris paribus assumption

Factors of production in resource markets. Households

Demand

Final goods and services and product markets. Firms

Demand

A good economic theory or model:

Does a good job explaining an economic relationship or predicting outcomes

normative economics

Evaluate the situation with respect to what should be which requires a value judgment

A direct (positive) relationship

Exist when a change in the value of the independent variable leads to a change in the value of the dependent variable in the same direction

Sarah argues that free trade must be bad for the economy because some people might lose their jobs due to foreign competition

Fallacy of composition

Leslie argues that each industry must benefit from technological advances because technological advances contribute to economic growth in a country

Fallacy of division

The assumption that because the economy as a whole is better off as a result of a trade treaty each individual industry must also be better off as a result of the treaty is an example of

Fallacy of division

Cells of ice cream increased and then the crime rate increase so eating ice cream must lead to criminal behavior

Fallacy of false cause

In a market economy

House holds our suppliers and resource market and demanders in product markets

One focus of macro economics is

How the economy can achieve the goals of full employment, priced ability, and economic growth

Laissez-faire

Idea that government should play as small a role as possible in economic affairs.

dependent variable

Is determined by or depends on the value of the independent variable

Fallacy of division

Is the mistaken idea that what is good and true for the whole must be good for the parts of the hole

Economics

Is the social science that studies how choices are made and the consequences of those choices

Scarce resources are separated into four resource categories

Land (natural resources), Labor, capital, entrepreneurship

Studies the total flow of income and output through the economy and looks at the whole model at one time

Macroeconomics

Ceteris Paribus Assumption

Means that other variables that influence the relationship between the variables under consideration are held constant to isolate the relationship between those two variables

Studies the real flow of monetary flow between households and firms in a specific market and looks at only one part of the circular flow at a time

Microeconomics

Economics is generally divided into two categories

Microeconomics and macroeconomics

Normative microeconomic

Parking on college campuses should be free for students enrolled in college

Positive microeconomic

People are likely to buy more new cars if the price of new cars fall substantially

An example of a positive micro economic statement is

People tend to buy more chickens when the price of beef increases

Normative macroeconomic

Raising taxes on corporations and wealthy individuals is the best way to balance the federal budget

Economy

Refers to all the decisions or choices made by economic agents within a given graphic area that involve the use of scarce resources

Assume an increase in the price of jean jackets leads to an increase in the quantity supplied of jean jackets. Ceteris Paribus, the graph of the relationship between the price and quantity supplied of jeans

Slopes upward to the right illustrating a direct relationship

Microeconomics

Studies the individual parts of the economy. The house holds the firms the markets and the various organizations that exist within the economy

Factors of production and resource markets. Firms

Supply

Supply and demand households

Supply

Fallacy of false costs also called post hoc fallacy

The assumption that because one of them followed another the first event must have caused the second event is invalid

Scarcity

The basic economic problem that forces all societies to decide what outputs to produce, how to produce the outputs, who ultimately gets to consume the outputs.

Employees in the defense industry have greater job security and higher pay when the country is engaged in major military conflicts, therefore it is good for the country to be involved in military conflict is an example of

The fallacy of composition

Suppose you were offered a coupon for a free dinner at a local restaurant, tip and drink included, if you attend a presentation for prospective renters at a new apartment complex in town. If you attend the presentation then?

The opportunity cost of using a coupon for the dinner is the best alternative use of the time you spent of the presentation

Positive macroeconomic

The unemployment rate increases when the economy is in recession

The graph of relationship between two variables, X and Y shifts when

The value of an exogenous variable, something other than x or y, changes.

opportunity cost

The value of the best alternative forgone when a choice is made

The opportunity cost to Lottie of taking an hour walk instead of taking an hour nap is

The value of the nap that Lottie gives up to take the walk

economic system

The way a society is organized to decide what outputs to produce and to decide who gets to consume those outputs

positive economics

Uses factual information and economic analysis tied into five what is without making a value judgment

Macroeconomics

Uses measures of total economic activity or economic aggregates such as gross domestic product inflation and the national unemployment rate to gouge the performance of overall economy

Ceteris paribus

a Latin phrase that means "all other things held constant"

Fallacy of composition

Arises when it is erroneously assumed that if something is true for a part it must be true for the whole