Economics
-Pg. 2.
-Study of how individuals, firms, and societies make decisions to maximize their well-being.
-Making decisions under scarcity.
Scarcity
-Pg. 4.
-Limitations in money, time, knowledge, work ethic, and anything else that can be used to achieve a goal.
Incentives
-Pg. 4.
-Good and bad factors that influence how a person makes a decision.
Microeconomics
-Pg. 4.
-One of the two broad categories of economics.
-"I" = Individual.
-Decision making by individuals, businesses, industries, and governments.
Macroeconomics
-Pg. 5.
-One of the two broad categories of economics.
-"A" = Aggregate.
-Broader issues being faced as a nation such as Inflation, Employment, Unemployment, and Economic growth.
-Policies that increase economic growth, the impact of government spending a
Inflation
-Pg. 5.
-General increase in prices economy-wide.
Stylized
-Pg. 5.
-Economics uses a stylized approach, creating simple models that hold all other relevant factors constant.
-Economics boil down facts to their basic relevant elements and use assumptions to develop a stylized (simple) model to analyze the issue.
Model
-Pg. 5.
-A theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them.
Ceteris Paribus
-Pg. 6.
-All else held constant.
-"Holding all other things equal."
-Important variables are held constant in order to build an economic model.
Efficiency
-Pg. 6.
-Economists and policymakers often face a trade-off between efficiency and equity.
-How well resources are used and allocated.
Production Efficiency
-Pg. 6.
-When goods are produced at the lowest possible cost.
Allocative Efficiency
-Pg. 6.
-When individuals who desire a product the most get that good or service.
Equity
-Pg. 6.
-Economists and policymakers often face a trade-off between efficiency and equity.
-Equity is usually a subjective matter (based on opinion).
-AKA fairness.
Positive Questions
-Pg. 7.
-Questions that can be answered one way or another as long as the information is available.
-Question that can be answered based on information.
-Positive questions will not always be agreed upon because facts and information can differ from each
Normative Questions
-Pg. 7.
-"How something ought to be."
-Question that can be answered by using one's own opinion.
-Social beliefs on what should or should not be done.
-Based on opinion.
Key Principles of Economics
-Pg. 8.
-A set of principles that show up in economic analysis.
Principle 1: Economics is Concerned with Making Choices with Limited Resources
-Pg. 8,15.
-Economics involves making decisions to maximize one's well-being, which can come from many sources, including money, time, happiness, or a fortuitous event.
Principle 2: When Making Decisions, One Must Take Into Account Trade-offs and Opportunity Cost
-Pg. 8,9,15.
-Choice and scarcity force trade-offs because we face unlimited wants but limited resources.
-Opportunity costs are resources that could be used in another activity.
-Everything a person does involves opportunity costs.
Principle 3: Specialization Leads to Gains for All Involved
-Pg. 9,15.
-Specializing in tasks in which one is comparatively better at doing than another allows individuals to achieve productivity gains as long as the work is shared in a mutually beneficial manner.
Principle 4: People Respond to Incentives, Both Good and Bad
-Pg. 9,10,15.
-Incentives encourage people to work hard and be more productive.
Principle 5: Rational Behavior Requires Thinking on the Margin
-Pg. 10,15.
-When making a decision involving benefits and costs, one should continue to consume or produce as long as the marginal (additional) benefit exceeds the marginal cost.
Principle 6: Markets Are Generally Efficient; When They Aren't, Government Can Sometimes Correct the Failure
-Pg. 10,11,15.
-Markets bring buyers and sellers together.
-Competition forces firms to provide products at the lowest possible price.
-New products are introduced into the market as old products disappear.
-This dynamism makes markets efficient.
-Markets
Principle 7: Institutions and Human Creativity Help Explain the Wealth of Nations
-Pg. 11,12,15.
-Institutions include the legal system, laws and policies, a government free of corruption, and a strong monetary system.
-Ideas and innovation lead to new products and improve existing ones, raising the standard of living of all residents.
Time Series Graph
-Pg. 18.
-Plots time on the horizontal axis and the value of some variable on the vertical axis.
Scatter Plot Graph
-Pg. 18.
-Two variables (neither variable is time) are plotted against each other.
-Usually tries to figure out if variables are related.
Pie Chart Graph
-Pg. 19.
-Show data that can be split into percentage parts that when combined together make up a whole.
Bar Chart
-Pg. 20.
-Shows that value of specific data points.
Horizontal Axis
-Pg. 21.
-x axis.
Vertical Axis
-Pg. 21.
-y axis.
Stylized Graph
-Pg. 22.
-Represents relationships between variables.
Linear Relationships
-Pg. 22.
-The curve is a straight line.
Computing the Slope of a Linear Line
-Pg. 22,23.
-Slope=rise over run.
-Slope=(rise�run).
-Since the slope is constant along a linear line, you can select two points and determine the slope of the entire curve.
Computing Slope of Nonlinear Curve
-Pg. 23.
-
Simple Linear Equations
-Pg. 24.
Shifting Curves
-Pg. 25.
Correlation is Not Causation
-Pg. 26.
-Just because 2 variables seem related or appear related does not mean that one causes another.