Module 1: Test 1

Chapter 1: Nature of Economics & Chapter 2: Scarcity & the World Trade-offs

Incentives

Rewards for engaging in a particular activity.

Economics

The study of how people allocate their limited resources to satisfy their unlimited wants.

Resources

Things that have value and are used to produce goods ad services that satisfy people’s wants.

Wants

What people would buy if they have unlimited income. Wants are goods and services on which we place postive value.

Microeconomics

The study of decision making undertaken by individuals (or households) and by firms.

Macroeconomics

The study of the behaviior of the economy as a whole.

Aggregates

Totals “total output in any economy” (macroeconomics)

Artificial Intelligence (AI) Technology

The development and implemention of methods of utilizing automated data analysis, machine learning, & virtual/aygmented reality techniques.

Economic System

A society’s framework for determining the way resources are utilized to satisfy human wants.

Rationality Assumption

The assumption that people do not intentionally make decisions that would leave them worse off.

Models or Theories

Simplifed representation of the real world used as the basis for predictations or explanations.

Variables

Ceteris Paribus Assumption

Nothing changes except the factors being study.

“other things constant”

“other things equals”

Empirical

Evidence (data) is looked to see whether we are right.

Behavioral Economics

Emphasizes psychological limitations and complications that may interfere w/ rational decision making.

Bounded Rationality

People are nearly, not fully rational. They cannot examine every choice avaliable to them.

Positive Economics

Strictly limited to making purely descriptive statements or scientific predictions → “If A, the B” (a statement of “what if”)

Normative Economics

Analysis involving value judgement; relates to whether outcomes are good or bad. (“what ought to be”)

Independent Variable

A variable whose value is determined independently of, or outside, the equation under study.

Dependent Variable

A variable whose value changes according to changes in the value of 1 or more indepednet variables.

Direct Relationship

A relationship between 2 variables that is positive, meaning that an increase in one variable is assoicate / an increase in the other, and a decrease in one variable is associated w/ decrease in the other.

Inverse Relationship

A relationship between 2 variables that is negative, meaning that an increase in one variable is associated w/ a decrease in the other, and decreas in one variable w/ an increase in the other.

Number line

A line that can be divided into segments of equal length, each associated w/ a number.

y-axis

The vertical axis in a graph.

x-axis

The horizontal axis in a graph.

Origin

The intersection of the y-axis & the x-axis in a graph.

Slope

The change in the y value divided by the change in the x value of a curve.

Figuring Positive Slope

rise (+) divided by run (+)

Figuring Negative Slope

rise (-) divided by run (+)

The Slope of a Nonlinear Curve

Slope varies along a nonlinear curve.

Scarcity

It mean we never have enough of everything, including time, to satisfy our every desire. (Occurs for producing things people desire are insuffient to satisfy all wants at a zero price)

Production

Any activity that results in the conversion of resources into products that can be used in consumption.

Land

Natural resources or gift of nature.

Labor

Human resource.

Physical Capital

All manufacture resources.

Human Capital

Accumulated training and education of workers

Entrepreneurship

• Raising capital

• Organizing, managing, and assembling other factors of production.

• Making basic business policy decisions

• taking risks.

Goods

All things from which individuals dervive satisfaction or happiness.

Economic Goods

Scarce goods, for which the quantity demand exceeds the quantity supplied at zero price.

Services

Task that are preformed for someone else (intangible goods)

Opportunity Cost

The highest-valued, next best alternative that must be sacrificed to obtain something or to satisfy a want.

Production Possiblities Curve (PPC)

The PPC represents all possible combinations of maximum outputs that could be produced, assuming a combinatinons of maximum that can be produced, assuming a fixed amount of productive resources of given quality.

Technology

Total pool of applied knowledge concerning how goods and services can be produced.

Efficiency

Productive efficiency is producing the maximum output w/ given technology and resources.

Inefficient Point

Any point below the production possiblities curve, at which the use of resources is not generating the maximum possible output.

Law of Increasing Additional Cost

• Resourcees are not perfectly adaptable for alternative uses.

• In general, the more specialized the resources, the more bowed the PPC.

Consumption

The use of goods and services for personal satisfaction,

Specialization

Organization of economic activity among different individuals & regions. (leads to greater productivitiy, individually & overall.

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost compared to others.

Absolute Advantage

The ability to produce more units of a good or service using a given quantity of labor or resources inputs.

Needs

To economist, the term is not definable.

Economic growth