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study of mankind in the everyday business life

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economics

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a simplified representation of the real world that economists develop to describe how the economy behaves and is expected to perform in the future. simplified description that captures the essential elements of a situation and allows us to analyze them in a logical way.

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economic model

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unlimited wants limited resources choices 1. What to produce? 2. How to produce? 3. Who to produce it for? 4.How will it promote progress? 5. Accommodate change?

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scarcity model

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just because we see things together does not mean they are associated or linked between them. ex. suppose that people who watch a lot of violence of TV are also particularly likely to behave aggressively. this relationship would NOT necessarily indicate that watching violence influences aggressive behavior because

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Association does not necessarily indicate causation

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The way things are

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Positive statement

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The way things should be

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Normal statement

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"Other things being equal." The assumption that all other variables remain constant except those being studies. all else equal = we're going to change this one part, and keep everything else constant to see what difference that one small change makes ex. what would happen if tuition was trippled

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Ceteris peribus

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What is good for one is not necessarily good for all. ex. Leaving early to avoid traffic. Everyone should go to college.

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Fallacy of composition

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flow of goods, services, and payments between households and firms

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The circular flow diagram of economic activity is a model of the:

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Factor market house holds Taxes Govt. Goods;Serv Bsns Good;Serv Taxes Product Market

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Circular flow of the economy

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Scottish moral philosopher and a pioneer of political economics. Seen today as the father of Capitalism. Wrote On the Wealth of Nations (1776) One of the key figures of the Scottish Enlightenment. (Scottish economist) in The Wealth of Nations, he created the concept of laissez-faire ( government should leave economy alone) ; applied natural law to means of production ; exchange (supply ; demand); saw mercantilism as government interference in economy or free trade; believed that enlightened self-interest would create the best production ; exchange for market conditions; government should only have 3 roles: protect society from invasion (army); defend citizens from injustice (police); ; keep up public works (roads, canals, bridges) that private individuals could not afford to provide but that society needed. " Its not from the benevolence of the butcher, the brewer, but from their regard yo there own interest....led by an invisible hand to promote and end which is no part of his intention..."

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Adam Smith

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division of labor

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In the first chapter of The Wealth of Nations, Smith introduces the idea of the __________, which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers.

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German philosopher, economist, and revolutionary. With the help and support of Friedrich Engels he wrote The Communist Manifesto (1848) and Das Kapital (1867-1894). These works explain historical development in terms of the interaction of contradictory economic forces, form the basis of all communist theory, and have had a profound influence on the social sciences. 19th century philosopher, political economist, sociologist, humanist, political theorist, and revolutionary. Often recognized as the father of communism. Analysis of history led to his belief that communism would replace capitalism as it replaced feudalism. Believed in a classless society. He spend most of his life fleeing due to persecution because of some of his ideas and beliefs.

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Karl marx

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Cost of the next best alternative use of money, time, or resources when one choice is made rather than another. Whatever must be given up to obtain some item. ex. Spending time going to college, you cannot spend time at work earning income.

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Opportunity cost

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review diagram -Investments -New Technology -New resources

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Production possibility curve

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-Destruction from war -Natural disasters -Manmade failures

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Reasons for contractions of the PPC

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Review it

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Budget contrarians

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review Law of demand: Quantity demanded rises as price falls.

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supply and demand graph

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-Substitutes -Compliments(Things go good with eachother) -Consumer taste -Consumer expectations -# of consumers in the market place -Consumer income

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Rules for Shift in demand

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Quantity supplied raises as price rises. The principle that suppliers will normally offer more for sale at higher prices and less at lower prices

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Law of supply

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taxes, subsides, and regulation

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Government policy

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ex. Businesses buy resources from households, and households use there income from the sale of resources to buy goods and services from businesses.

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circular flow of income

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households receive revenue for selling goods and services to businesses, and use that revenue to buy inputs from businesses. households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses.

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In the circular flow diagram model:

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goods and services market

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In the ______________, households receive goods and services and pay firms for them.

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cuba

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In which of the following countries will the national government have the greatest influence with respect to the nation's economy?

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Economies of scale

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_____________ - a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines.

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broad issues such as national output, employment and inflation.

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Macroeconomics primarily examines

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government

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in a command economy, the __________ either makes most economic decisions itself or at least strongly influences how the decisions are made.

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microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.

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The basic difference between macroeconomics and microeconomics is:

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labor market

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In the ____________, households work and receive payment from firms

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market oriented economy

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In a _______________________, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers.

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Cuba & North Korea

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In countries like _____________ the command economy predominates.

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unemployed people

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If macroeconomics looks at the economy as a whole, it focuses on which of the following?

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a decrease in the unemployment rate

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Which of the following is most likely a topic of discussion in macroeconomics?

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ex.choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.

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Marginal thinking is best demonstrated by:

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diminishing marginal utility

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The law of ____________________________ explains why people and societies rarely make all-or-nothing choices.

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budget constraint

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The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible

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it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available.

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Scarcity implies that:

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marginal analysis

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Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

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budget constraint

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The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.

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Ability or capacity of a good or service to be useful and give satisfaction to someone. ex. In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income.

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utility

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