Key Economic Terms

• Scarcity

  • Limited resources affect choices (not just money).

• Trade Offs

  • Choosing one option over another due to scarcity; giving up one thing to gain another.

• Opportunity Cost

  • Value of the next best alternative when making a choice.

Economics Foundations

• Microeconomics vs. Macroeconomics

  • Microeconomics: Focuses on individual and business decisions (supply and demand, pricing).

  • Macroeconomics: Studies the economy as a whole (national economic issues, inflation, unemployment).

Economic Systems

• Traditional Economy

  • Operated based on customs and traditions.

• Command Economy

  • Decisions made by a central authority or government.

• Market Economy

  • Decisions made by voluntary exchange in markets; focus of macroeconomics.

Positive vs. Normative Statements

• Positive Statements

  • Claims about how the world is; testable and can be proven true or false.

• Normative Statements

  • Claims about how the world ought to be; expresses opinions (use terms like "should" or "ought to").

Graphing Concepts

• Axes in Graphs

  • X-axis: Generally represents quantity.

  • Y-axis: Generally represents price.

• Calculating Slope

  • Slope = Rise / Run; importance of determining the rate of change between two variables.

• Shifting Curves

  • Changes can be visualized by moving the entire graph (e.g., to the left/right).

• Maxima and Minima

  • Maximum: The peak point of a graph.

  • Minimum: The lowest point of a graph.

Area Calculations

• Area of Triangle

  • A = (1/2) * base * height.

• Area of Rectangle

  • A = length * width.

Relationships in Graphs

• Correlation vs Causation

  • Correlation: Predictive relationship between two variables.

  • Causation: Direct cause-effect relationship.

Common Graph Pitfalls

• Omitted Variable Bias

  • Important variables left out can skew graph interpretations.

• Reverse Causality

  • Misinterpretation of which variable is affecting the other.