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Define Economics

Economics is the study of how society manages its scarce resources.


How do economist use the scientific method?

Through observation, analysis, formulating theory, and more observing. Their experiments are the world and it's constant economic interactions.


Importance of ceteris paribus in formulating economic principles.

ceteris paribus means; all other things being held constant. It is used to rule out other factors changing a causal relationship between 2 variables.


Micro vs Macro

Microeconomics = how households and firms make decisions and hey're interactions in markets.

Macroeconomics = study of the economy wide phenomena. The economy as a whole is looked at.


Positive vs Normative economics

Positive = Descriptive and factual statements. Uses scientific principles .
Normative = Value based statements. Incorporate opinions. "What it ought to be like"


Production possibility frontier

Point inside the curve means it's inefficient. Resources are not being used efficiently.

Point outside the curve represents an output level not attainable.

Points on the curve are efficient uses of resources


Invisible Hand

A metaphor describing how individuals pursuing self interests promote the good of society.


Absolute advantage vs Comparative advantage

Absolute = when a country has an absolute advantage at producing a good over another country.

Comparative = When one country can produce a good with a lower opportunity cost than another country.


Shift vs movement along demand/supply curve

Movement along = a change in price of a good causes a movement along the demand/supply curve

Shift = change in income, popularity of a good, price of substitutes/compliments. Change in production costs, technology, subsidies. These types of factors shift demand/supply curves.


Major determinants of demand

-# of buyers
-Price of other goods
-Expectations of future prices
-Taste and preferences


Shift factors of supply

-Cost of production
-Number of sellers
-Price of other goods


Cyclical unemployment

Associated with the cycles of business. Expansions, recessions.


Structural unemployment

From a mismatch of jobs available and the skills of workers. Binding minimum wages.


Frictional unemployment

Job seekers and employers need time to find one another. Changes in demand for labor.


Natural rate of unemployment

When there is no cyclical unemployment.


Price elasticity of demand

Measures the buyers responsiveness to changes in price


Price elasticity of supply

Measures the sellers responsiveness to changes in price