Economists use models to gain a better understanding of how the economy -buying, selling, working, hiring, manufacturing, etc- works.
Circular-flow diagram: a visual model of the economy that shows how dollars flow through markets among households and firms.
A firm produces and sells goods, and services, while also hiring and using factors of production.
Households include buying and consuming goods, and services, while also owning and selling factors of production.
Markets for goods and services include selling firms and buying households.
Markets for factors of production include selling households and buying firms.
Production possibilities frontier: a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.
Resources are scarce, making it possible for an economy to be efficient if it uses all of the scarce resources available to it.
It is believed that because of unemployment, the economy is producing less than it could from the available resources. If the economy moved in a more sufficient direction, it could go from producing 300 cars to 600 cars, and 1,000 computers to 2,200 computers.
In order to produce more of one good, we must then produce less of another.
The advancement in technology has led the economy to have a higher demand for producing computers for any given number of cars.
Scarcity, efficiency, trade-offs, opportunity cost, and economic growth are powerful ideas that are highlighted to simplify a complex economy.
Economics can be studied on various levels: decisions made by individual households and firms, interactions between households and firms in markets that are specific to their goods and services, or the operation of the economy as a whole.
Economics is typically separated into two subfields: microeconomics and macroeconomics.
Microeconomics: the study of how households and firms make decisions and how they interact in markets.
Macroeconomics: the study of economy-wide phenomena, including inflation, unemployment, and economic growth.
A microeconomist, for example, could study how housing in NYC is affected by rent control or how the U.S. auto industry is affected by the impacts of foreign competition.
A macroeconomist, for instance, could study the effects of borrowing by the federal government or how the economy's unemployment rate changes over time.
Because economists often face trade-offs, their advice is typically not straightforward. President Harry Truman once observed this.
A policy could risk its effectiveness of equality by increasing its efficiency. While the current generation could hurt from this policy, it could pay off in the long run, benefitting future generations.
The Council of Economic Advisers includes three members and staff with nearly a dozen economists. They advise the president and help write the Economic Report of the President which appears annually.
The Economic Report of the President: recent developments in the economy are discussed, as well as the addressing of the council's analysis of current policy issues.
In the Office of Management and Budget, economists assist with formulating spending plans and regulatory policies.
In the Department of Justice, economists enforce the nation's antitrust laws.
In the Department of the Treasury, economists help design tax policies.
In the Department of Labor, economists analyze data on workers and people searching for work, in order to help form labor-market policies.
Economists are also employed and relied on by Congress. Congress relies on the Congressional Budget Office and the Federal Reserve. The Federal Reserve sets the nation's monetary policy and employs hundreds of economics throughout the world to analyze developments in each country.
Graphs help economists express concepts with numbers and variables that are related to one another.
Graphs can express ideas in an easier way than equations or words could express it. They also analyze data, providing patterns to be found and interpreted.
Economists can use Pie Charts, Bar Graphs, or Time-Series Graphs.
The Coordinate System can be used in graphs to represent two variables, whether they're changing over time or across individuals.
X-coordinates tell the location of a point on the horizontal axis.
Y-coordinates tell the location of a point on the vertical axis.
Grade point averages can be measured on a coordinate system.
Ex. If study time and GPA. moved up in the same direction, these two variables would create a positive correlation. If they were to move in opposite directions, meaning if party and grades were graphed and compared, lower grades would most likely be associated with more party time, equaling a negative correlation.
A coordinate system could include curves. Demand curves can trace out the effect of a good's price on the quantity of the good consumers want to buy.
When two variables move in opposite directions, they're negatively related.
When two variables move in the same direction, they're positively related.
When analyzing a graph in economics, it's important to realize the difference between movements along a curve and shifts of a curve.
The curve can shift when a relevant variable that isn't labeled on the axis' changes.
A slope can be used when examining how much a variable responds to changes in another variable.
When calculating slope you can use the rise over run, or y divided x.