Economics Notes Chapter 1

Economics Notes Chapter 1 - Variable a measure of something...

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Economics Notes Chapter 1 Economics is the study of how people, businesses, governments, and other organizations make choices where there is scarcity Scarcity means that the resources we use to produce goods and services are limited Factors of Production – the resources used to produce goods and services 1) Natural resources – provided by nature 2) Labor – physical and mental effort 3) Physical capital – stock of equipment 4) Human capital - knowledge 5) Entrepreneurship – effort to produce and sell products; willingness to assume risk Positive analysis – answers questions “What is?” and “What will be?” Normative analysis – answers question “What ought to be?” Economic models – simplified representation of an economic environment Three key economic questions: What products do we produce?, How do we produce the products?, Who consumes the products?
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Unformatted text preview: Variable a measure of something that can take on different values Ceteris paribus to hold other variables fixed Marginal change a small, one-unit change Four main elements to the economic way of thinking 1) Use assumptions to simplify 2) Isolate variables 3) Think at the margin 4) Rational people respond to incentives Macroeconomics the study of the nations economy as a whole Reasons to study Macroeconomics 1) To understand why economies grow 2) To understand economic fluctuations 3) To make informed business decisions Microeconomics the study of the choices made by households, firms, and government and how these choices affect the markets for goods and services Reasons to study Microeconomics 1) To understand markets and predict changes 2) To make personal and managerial decisions 3) To evaluate public policies...
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