ECO 105 Wednesday, January 15, 2014 Notes:Chapter 1:What is economics? It’s the science of choice made by people and organizations, study of choices when there is scarcity.Whats scarcity? Resources we use to produce goods & services are limited. 4 factors of production? Natural resources, labor, physical capital, human capital, and entrepreneurshippositive analysis: answers the questions “What is?” or “What will be?”normative analysis: answers the question “What ought to be?”Positive analysis Normative analysis-if the government increases minimum wage how many workers will lose their jobs?-if 2 office-supply firms merge, will the price of office supplies increase?-should the government increase the minimum wage?-should the government block the merger of 2 office-supply firms?The 3 key economic questions: What, how, and who?Economic models serve as a simplified presentationVariable: a measure of something that can take on different valuesCeteris paribus: Latin meaning all other variables are held fixedMarginal change: a small, one unit change in valueA key assumption of most economic analysis is that people act rationally, meaning that they act in their own self interest. Ex: parents help their kids pay for college because it is in their best self-interest down the road so they aren’t taking care of them their entire lives.Macroeconomics: study of a nation’s economy as a whole, focuses on the issues of inflation, unemployment, and economic growthMicroeconomics: study of choices made by the small businesses, households, firms,and government, the choices affect the market for goods and servicesPositive relationship: when two variables on a graph move in the same directionNegative relationship: when two variables on a graph move in different directionsFormula for percentage change: new value-initial value x 100 Initial