Econ Full Outline - Econ 004 Final Exam Outline Chapter 1 I...

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Econ 004: Final Exam Outline Chapter 1 I. Defining Economics a. Framework to analyze solutions to economic problems i. i.e. staying in school, choosing which classes, sending U.S. troops abroad b. Definition of economics i. The study of how people allocate their limited resources to satisfy their unlimited wants 1. The study of how people make choices c. Mirco i. Small problems ii. Study of decision making undertaken by individuals ( or households ) and by firms 1. Pollution, crime, health care, education d. Macro i. Study of behavior of the economy as a whole 1. Inflation, taxes, unemployment II. Rational self - interest a. Economists assume people make choices in their own self-interest and in a rational manner i. People are in it for themselves b. Rationality Assumption i. The assumption that people do not intentionally make decisions that would leave them worse of 1. You do things to make yourself better off based on what makes you happy 2. Economists base their models on assumption people behave rationally a. More is better ii. Incentives 1. Positive a. Extra credit, a raise 2. Negative a. Punishment 3. Examples a. Choices between life and death b. Happy hours c. Quizzes d. Taxes and Birth Rates c. Defining Self-Interest i. The pursuit of one’s goals 1. Humanitarian 2. Prestige 3. Wealth 4. Power 5. Friendship III. Economics as a Science a. Models or Theories i. Simplified representations of the real world used as the basis for predictions or explanations 1. A map and getting directions are examples 2. C+I+G+X=GDP b. Assumptions i. Set of circumstances in which a model is applicable ii. Ceteris Paribus Assumptions 1. Nothing changes except the factor or factors being studied iii. Keep it simple c. Real world data is used to evaluate the usefulness of a model d. Models are useful to predict economic phenomena i. Models predict how people react, not how they think IV. Positive vs. Normative a. Positive Economics i. Purely descriptive statements or scientific predictions—a statement of “what is” 1. What you will learn b. Normative Economics i. Analysis involving value judgments—a statement of “what ought to be” 1. What you apply
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2 Chapter 2 I. Scarcity a. Occurs when the limited resources for producing things that people desire are insufficient to satisfy all unlimited wants i. NOT a shortage ii. NOT the same things as poverty b. Production i. Final product: cookie ii. Resources or Factors of Production 1. Inputs that are used to produce things that people want a. Land i. Natural resources or the gifts of nature b. Labor i. The human resource c. Physical and Human Capital i. Physical 1. Manufactured resources ii. Human 1. Accumulated training and education or workers d. Entrepreneurship i. Labor that organizes and manages the other resources ii. Risk taker iii. Maker of basic business policy decisions c.
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