Macroeconomics Ch 1: Introducing The Economic Way Of Thinking

Front 1

Scarcity

What is it and what does it force us to do?

Back 1

The fundamental economic problem, in which human wants are always greater than the available supply of time, goods, and resources. One can never overcome scarcity. Scarcity forces us to make choices.

Front 2

The economic problem

Back 2

Providing for people's needs and wants in a world of scarcity.

Front 3

Resources

Back 3

resources are the basic inputs used to produce goods and services. because of scarcity, no society has enough resources.

Resources are also called Factors of Production and are divided into three categories: Land, Labor, and Capital.

Land

Front 4

Land Resources

Back 4

both renewable and non renewable resources. accounts for any resource provided by nature. includes anything natural above or below the ground such as lakes, forests, gold, diamonds, oil, coal, wind etc.

Front 5

Labor Resources

Back 5

Labor is the physical and mental capacity of workers to produce goods and services ( people power). measured by both the number of workers available to work and the skills/quality of workers.

Farmers, assembly-line workers, lawyers, and professional football players are all labor resources.

countries differ in labor resources because of education, health, motivation, and experience.

Front 6

Capital Resources

Back 6

Plants, machinery and equipment used to produce goods and service. Human made goods that do not directly satisfy human wants. factories, office buildings, warehouses, robots, trucks etc.

Not money!!!!!!!! This is financial capital

Front 7

Financial Capital

Back 7

the money used to purchase capital. financial capital by itself is not productive, it is a claim on capital.

Front 8

Entrepreneurship

Back 8

the creative ability of individuals to seek profits by taking risks and combining resources to produce innovative products. An entrepreneur partakes in risky activities such as starting a new business, creating new products, or inventing new ways of accomplishing tasks. scarce resource because few people are willing to or able to take such a risk.

e.g.Levi Strauss, who invented new workers jeans during gold rush.

Front 9

What is Economics?

Back 9

economics is the study of how society chooses to allocate its scarce resources in order to satisfy its unlimited wants and needs.

Front 10

Macroeconomics

Back 10

The big picture, the economy wide perspective. studies the decision making for the economy as a whole. looks at variables such as inflation, unemployment, growth of the economy, money supply, national income etc.

Front 11

Microeconomics

Back 11

study of the decision-making process by a single individual, household, firm, industry, or government.

e.g the market for ostrich eggs, will the suppliers decide to supply more or less in response to price changes? will buyers buy more or less at different prices?

Front 12

What is an economic model and what are the steps in the model building process?

Back 12

an economic model is a simplified description of reality used to understand and predict the relationship between variables.

the model building process consists of identifying a problem, developing a model on simplified assumptions, and then collecting data, testing the model, and formulating a conclusion.

if the evidence supports the model, the conclusion is to accept the model. If not, the model is rejected.

Front 13

What are the two common pitfalls in understanding how the economy works?

Back 13

Failing to apply ceteris peribus

confusing association( correlation) with causality.

Front 14

What is the Certeris Peribus assumption.

Back 14

a Latin phrase that means that while certain variable can change, all other things remain the same. A theory cannot be legitimately tested until ceteris peribus is satisfied. allows us to isolate and focus on specific variables.

Front 15

Association vs. causation

Back 15

we cannot always assume that when one event follows another, that the first caused the second.

Front 16

Positive economics vs. normative economics

Back 16

Positive economics is based on statements that are verifiable ( if..then statements)

normative economics contain a value judgement. contain certain words such as should, ought to, bad, need to etc.

when opinion or points of view are not based on fact they are scientifically untestable.

Front 17

why do some economists disagree?

Back 17

economist may agree that if A then B., but may disagree that A will happen in the first place.