Economic thinking

Scarcity

that there are never enough resources to satisfy all human wants.

Economics

the study of the tradeoffs and choices that we make, given the fact of scarcity

Opportunity cost

what we give up when we choose one thing over another

Most goods (and services) are

economic goods

Scarce goods

those for which the demand would be greater than the supply if their price were zero

Free good

any good whose supply is greater than the demand if their price were zero

4 productive resources

Land, economic capital, labor, entrepreneurship

Land

any natural resource, including actual land, but also trees, plants, livestock, wind, sun, water, etc

Economic capital

anything that’s manufactured in order to be used in the production of goods and services. Note the distinction between financial capital (which is not productive) and economic capital (which is). While money isn’t directly productive, the tools and machinery that it buys can be

Labor

any human service—physical or intellectual. Also referred to as human capital

Entrepreneurship

the ability of someone (an entrepreneur) to recognize a profit opportunity, organize the other factors of production, and accept risk

Division of labor

the way in which the work required to produce a good or service is divided into tasks performed by different workers

Economies of scale

when the average cost of producing each individual unit declines as total output increases

Specialization

when workers or firms focus on particular tasks for which they are well suited within the overall production process

Fiscal policy

economic policies that involve government spending and taxes

Macroeconomics

the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance

Microeconomics

the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and businesses

Monetary policy

policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing

Circular flow diagram

a diagram indicating that the economy consists of households and firms interacting in a goods-and-services market and a labor market

Goods and services market

a market in which firms are sellers of what they produce and households are buyers

Economic model

is a simplified version of reality that allows us to observe, understand, and make predictions about economic behavior

Labor market

the market in which households sell their labor as workers to businesses or other employers

Intercept

the point on a graph where a line crosses the vertical axis or horizontal axis

Slope

the change in the vertical axis divided by the change in the horizontal axis

Variable

a quantity that can assume a range of values

X-axis

the horizontal line on a graph, commonly represents quantity (q) on graphs in economics

Y-axis

the vertical line on a graph, commonly represents price (p) on graphs in economics

Negative slope

indicates that two variables are negatively related; when one variable increases, the other decreases, and when one variable decreases, the other increases

Positive slope

indicates that two variables are positively related; when one variable increases, so does the other, and when one variable decreases, the other also decreases

Slope of zero

indicates that there is no relationship between two variables; when one variable changes, the other does not change

Bar graph

shows data as vertical bars; the height of different bars are used to compare quantities

Line graph

shows a relationship between two variables: one measured on the horizontal axis and the other measured on the vertical axis

Pie

used to show how an overall total is divided into parts. A circle represents a group as a whole and slices of this circule show the relative sizes of subgroups

Time series

type of line graph in which the horizontal axis shows time and the vertical axis displays another variable. Thus, a time-series graph shows how a variable changes over time

In the case of an inverse relationship between two variables, all else remaining constant

the value of the two variables will move in opposite directions from each other

When creating a graph for your economics course, which axis is most commonly used to represent quantity (q)?

x-axis

Trade brings advantages to society because through trade

specialization can occur

Macroeconomics topics can be impacted by which of the following microeconomics topics?

how do people decide how much to save for the future, or whether they should borrow to spend beyond their current means

If Kendrick decides to watch t.v. instead of going to the gym, the ________ of his decision is a missed workout

opportunity cost

When picking up a rental car at an airport car rental agency, some travelers stand in line waiting to sign paperwork and pick up car keys at the rental desk while other travelers can go right to their rental car by using their rental car loyalty club card. In this example, the travelers who move quickly through to the parking lot pick up their car are probably

travelers who value convenience more than those waiting in line and are willing to pay additional club fees for the option of avoiding them

What is not an example of economic capital?

Money

In economics, functions often describe cause and effect. In an economic function, the variable being described on the left-hand side represents a(n) ________?

effect

The ________ simplifies the interaction of two groups, firms and households, and allows us to make predictions about economic behavior

the circular flow diagram

Lynn sat down to calculate the economic equation, y= 12+7x18, for her economics course. What should she remember to do in order to find y?

follow the correct order of operations