Economics
The study of how individuals and societies choose to allocate scarce resources.
It’s a social science.
Scarcity
Scarcity:
fact that there is a limited amount of resources to satisfy unlimited wants.
economic resources
economic resources:
also called the factors of production; these are:
land (natural resources such as minerals and oil),
labor (work contributed by humans),
capital (tools, equipment, and facilities), and
entrepreneurship (the capacity to organize, develop, and manage a business)
that individuals and businesses use in the production of goods and services.
models
Models
graphical and mathematical tools created by economists to better understand complicated processes in economics.
ceteris paribus
a latin phrase meaning “all else equal”.
agent
some entity making a decision; this can be an individual, a household, a business, a city, or even the government of a country.
incentives
rewards or punishments associated with a possible action; agents make decisions based on incentives.
rational decision making
rational decision making
an agent is “rational” if they use all available information to choose an action that makes them as well off as possible; economic models assume that agents are rational.
What is positive analysis?
Positive analysis is:
analytical thinking about objective facts and cause-and-effect relationships that are testable, such as how much of a good will be sold when a price changes.
normative analysis
normative analysis
unlike positive analysis, normative analysis is subjective thinking about what we should value or a course of action that should be taken, such as the importance of environmental factors and the approach to managing them.
What is microeconomics?
the study of the interactions between buyers and sellers in individual markets for particular goods and services.
the study of competitive structure of markets.
the study of markets for resources.
What is macroeconmics?
Macroeconomics is:
the study of aggregates
the study overall commercial output
the study of health of nations; including the analysis of factors such as: unemployment, inflation, economic growth and interest rates.
economic aggregates
economic aggregates are:
measurables such as :
unemployment rate,
rate of inflation,
and national output
that summarize all markets in an economy, rather than individual markets;
economic aggregates are frequently used to measures the economic performance of an economy.
economic aggregates
economic aggregates
measures such as the unemployment rate, rate of inflation, and national output that summarize all markets in an economy, rather than individual markets; economic aggregates are frequently used as measures of the economic performance of an economy.
economic aggregates
economic aggregates
measures such as the unemployment rate, rate of inflation, and national output that summarize all markets in an economy, rather than individual markets; economic aggregates are frequently used as measures of the economic performance of an economy.
Common Misconceptions
Economic doesn’t study the:
Stock market
How to run a business
Economics essential assumption
Economics essential assumption is:
People and business will always act in their best interests. Not always true in the “real world”. In the “real world” people, businesses and entire societies can be highly irrational.
Behavioral Economics
Seeks to understand why humans choose to make economically “irrational” choices in their decision making.
Capital
Already produced goods (tools, machinery, equipment, and physical infrastructure) that are used in the production of other goods or services.
Money borrowed to start a business is not capital in economics.
