ECON 330 CH 1
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physical plants, machinery, and equipment used to produce other goods
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Capital
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is a shorthand expression for any resource provided by nature
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Land
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is the mental and physical capacity of workers to produce goods and services. This resource is measured by the number of workers as well as the skills and quality of workers.
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Labor
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is the creative ability of individuals to seek profits by taking risks and combining resources to produce innovative products. It is not a separate source but rather is a special type of the resource.
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Entrepreneurship
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A wheat farmer in Nebraska takes a risk and starts a new farm on land that was previously thought unfit growing wheat. If his new farm succeeds because of the farmer's new growing technique, the farmer will earn a substantial profit. Because it represents a person's creative input to production, the innovation of using a new farming technique is an...
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Entrepreneurship
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A corn farmer in Montana uses knowledge gathered from the agricultural training program at the local university to improve his ability to produce corn. Because it represents a human input to production, education and training are examples of investment in..
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Labor
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is the condition in which human wants are forever greater than available supply of time, goods, and resources. ______ of a particular thing means there is not enough of that item to satisfy everyone who wants it.
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Scarcity
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Suppose that the hypothetical country of Andesland has a chronic scarcity of its staple grain, quinoa. T/F: There is less quinoa available than residents of Andesland would like.
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True
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Suppose that hypothetical country of Paddyland has a chronic scarcity of its staple grain, rice. T/F: People in Paddyland must be poor.
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False
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is the study of how individuals and firms make decisions and how they interact in markets. Therefore, ___________ are more likely to create models that analyze the decisions firms (such as pricing) and consumers (such as shopping choices), as well as how government policies affect those decisions.
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Microeconomics
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is the study of matters affecting the entire economy. There, ____________ are more likely to create models that analyze the policy decisions of government and central banks, as well as how these decisions affect growth, inflation, and unemployment.
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Macroeconomics
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Micro/Macro: The effect of government tax policy on long-term economic growth
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Macro
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Micro/Marco: The effect of a cigarette tax on the quantity of cigarettes sold
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Micro
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Micro/Macro: The government's optimal spending level
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Macro
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Micro/Macro: The effect of a large government budget deficit on the economy's price level
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Macro
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Micro/Macro: The effect of the internet on the pricing of used cars
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Micro
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Micro/Macro: The effect of government regulation on a monopolist's production decisions
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Micro
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"All other things remain unchanged" is a key simplifying assumption that must be satisfied for a theory to be tested legitimately. This assumption allows concentration on the relationship between key variables without unnecessary complication of the model.
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Ceteris paribus
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Problem identification -> Model development -> Testing a theory
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Economic model-building process
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One assumption that must be satisfied for a theory to be test legitimately is the _______ assumption.
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Ceteris paribus
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In order to be useful, models require ____ assumptions.
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Simplifying
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is to create simplifying abstraction of reality in order to understand complex events. Complicating a model too much makes it of little use for this purpose.
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Purpose of a model
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is one that seeks to describe the world as it is
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Positive
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is one that offers opinion as to the way the world should be
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Normative
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Positive/Normative: Killing people is bad
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Normative
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Positive/Normative: By executing convicted murderers, the government can deter potential murderers and decrease the murder rate.
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Positive
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Positive/Normative: It is immoral for the government to kill people
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Normative
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Positive/Normative: The government should not execute anyone, even murderers.
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Normative
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Positive/Normative: Taxes are too high
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Normative
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Positive/Normative: If taxes were lowered, government revenues would actually increase
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Positive
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Positive/Normative: It is immoral for the government to redistribute money from one person to another.
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Normative
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Positive/Normative: When the government taxes the rich and gives more to the poor, it gives the rich an incentive to hide their earnings from the government
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Positive
