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Intro to Macroecon.
| Question | Answer |
|---|---|
| Economics | the study of how individuals and societies choose to allocate scarce resources |
| Scarcity | the fact that there is a limited amount of resources to satisfy unlimited wants |
| Economic Resources | 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) used in the production of goods and services. |
| 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 | 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 |
| Positive Analysis | analytical thinking about objective facts and cause-and-effect relationships that are testable, such as how much of a good will sell when a price changes |
| 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 |
| Microeconomics | the study of the interactions of buyers and sellers in the markets for particular goods and services |
| Macroeconomics | the study of aggregates and the overall commercial output and health of nations; includes the analysis of factors such as unemployment, inflation, economic growth, and interest rates |
| Economics Aggregates | measures such as the unemployment rate, rate of inflation, and national output that summarizes all markets in an economy, rather than individual markets; economic aggregates are frequently used as measures of the economic performance of an economy |
| Production Possibilities Curve (PPC) | a graphical model that represents all of the different combinations of two goods that can be produced; the PPC captures the scarcity of resources and opportunity costs |
| Opportunity Cost | the value of the next best alternative to any decision you make; for example, if someone can spend their time either watching videos or studying, the opportunity cost of an hour watching videos is the hour of studying given up to do that |
| Efficiency | the full employment of resources in production; efficient combinations of output will always be on the PPC |
| Inefficient Use (Under-Utilization) of Resources | the underemployment of any of the four economic resources (land, labor, capital, and entrepreneurial ability); inefficient combinations of production are represented using a PPC as points on the interior of the PPC |
| Growth | an increase in an economy's ability to produce goods and services over time; growth in the PPC model is illustrated by a shift out of the PPC |
| Contraction | a decrease in output that occurs due to the under-utilization of resources; in a graphical model of the PPC, a contraction is represented by moving to a point that is further away from, and on the interior of, the PPC |
| Constant Opportunity Costs | when the opportunity cost of a good remains constant as output of the good increases, which is represented as a PPC curve that is a straight line; i.e., if someone always gives up producing 2 computers every time they produce a keyboard, they have COC |
| Increasing Opportunity Costs | when the opportunity cost of a good increases as output of the good increases, which is represented in a graph as a PPC that is bowed out from the origin; i.e. someone gives up 2 computers when they produce 1 keyboard, and 4 computers for the 2nd keyboard |
| Productivity | the ability to combine economic resources; an increase in productivity causes economic growth, even if economic resources have not changed, which would be represented by a shift out of the PPC |
| Opportunity cost of each unit of good X = | (Y1-Y2) / (X1-X2) of good Y |
Created by:
lexi.welte
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