1/27/14: Module 1: The Study Of Economics

Economics
The study of scarcity and choice
Individual Choice
Decisions by individuals about what to do, which necessa
rily involve decisions about what not to do
Economy A system for coordinating a society s productive and consumptive activitie
s
Market Economy Decisions of individual producers and consumers largely determin
e what,, how, and for whom to produce, with little government involvement in the
decisions
Command Economy Industry is publicly owned and a central authority makes product
ion and consumption decisions
Incentives
Rewards or punishments that motivate particular choices
Property Rights Establish ownership and grant individuals the right to trade goo
ds and services with each other
Marginal Analysis
The study of the costs and benefits of doing a little bi
t more of an activity versus a little bit less.
Resource
Anything that can be used to produce something else
Land
All resources that come from nature, such as minerals, timber, and petro
leum
Labor The effort of workers
Capital Manufactured goods used to make other goods and services
Entrepreneurship
The efforts of entrepreneurs in organizing resources for
production, taking risks to create new enterprises, and innovating to develop n
ew products and production processes
Scarce Resource that is not available in sufficient quantities to satisfy all t
he various ways a society wants to use it
Opportunity Cost
The real cost of an item which you must give up in order
to get it
Microeconomics The study of how people make decisions and how those decisions i
nteract
Macroeconomics Study concerned with the overall ups and downs in the economy
Economic Aggregates
Economic measures that summarize data across many differ
ent markets
Positive Economics
The branch of economic analysis that describes the way t
he economy actually works
Normative Economics
Makes prescriptions about the way the economy should wor
k
1) D
4) B

2) E (D)
5) A

3) A (B)

1/27/14: Basic Economic Concepts (Part 1): Unit 1 & Unit 2

Theory, law, principle, or model: Often reflects degree of confidence. Use in e
conomics is determined by convenience or custom.
Positive vs. normative economics: Positive economics must be proved by fact, whe
ther true or untrue. Normative is should questions.
Correlation: variables are often observed together in a pattern (income and educ
ation)
Causations: one variable is the cause of change in the variable (price and quant
ity)
Do not assume one or the other- will experience both in this course
Ceteris Paribus: all other things held constant. A variety of variables/factors/
conditions influence economic scenarios. You must assume no change in them unles
s told otherwise. At first, you will be inclined to consider change, so beware.
Scarcity: Never forget that our limited (Scarce) economic resources are the basi
s of the study of economics. There are not enough economic resources to meet our
unlimited needs and wants, so choices must be made.

Trade-offs: all of the other opportunities you did not take when you made your c
hoice
Opportunity cost: the runner-up opportunity sacrificed when you made your decision
TINSTAAFL: There s no such thing as a free lunch. Cost falls on someone, in some w
ay
Economic Resources: Factors used to create (produce) the goods and services peop
le want or need. Also called: factors of production and productive resources. Fo
ur types: Land, Labor, Capital, and Entrepreneurship. Human capital is invested
in people by educating them to do or know various things. Money is not an econom
ic resource. Land earns rent, labor earns wages, capital earns interest, and ent
repreneurship earns profit.
Economic Goals: economic growth, full employment of resources, price stability,
and balance of trade
Production Possibilities Model: Model (graph) that explains the necessity and co
nsequences of the choices nations must make. Assumes a fixed amount of resources
: quantity and quality of LLC&E. Assumes technology is at a fixed level. Conside
rs production of two goods that symbolize two categories of goods: Capital goods
(indirectly satisfies needs and wants) and Consumer goods (directly satisfies o
ur needs and wants).
Production Possibilities Frontier: Points along the line show combinations of go
ods that can be produced when fully employing our limited resources (frontier).
Combinations inside the PPF are attainable but not efficient (underemployment of
resources).
Future curve due to growth: Increase in quantity or quality of resources, or tec
hnological advances cause this
Best combination: The country alone can decide this, which affects how much they
will grow. Capital goods= more growth at a faster speed.