Economics 101 Installment 1 Economics how society chooses to allocate its scarce resources to the production of goods to satisfy unlimited wants Economic method process model Identify problem simplify assumptions collect data test and form conclusion BE CAREFUL WITH ASSEMPTIONS just because the rooster crows before the sun comes up does not mean that the rooster causes the sun to come up Model simplified description map of reality used to understand and predict Ceteris Paribas certain variables change while other don t must be true to test theory Macroeconomics study of decision making for the economy as a whole Microeconomics study of the decision making of a single individual household firm industry or government level Positive economics things are this way statements that are verifiable Normative economics analysis based on values it should be this way the poor should be fed Economists may agree that event A causes event B but they may not agree that event A will happen Three questions that economics ask What to make how to make it and who gets what Scarcity leads to choice which leads to opportunity cost Scarcity humans want more than resources allow us to make people have to choose what they want most even if rich they will always want more thus scarcity is and always will be Factors of production resources LAND LABOR including entrepreneurship and CAPITAL Land forests timber gold oil coal wind sun property etc Renewable resources lakes crops clean air etc Nonrenewable resources coal oil natural gas etc Labor mental and physical workers Entrepreneurs type of labor seek profits at a risk combine resources to make a new product Capital human made goods machines that are used to produce other goods MONEY IS NOT CAPITAL Money is FINANCIAL capital and is used to buy capital Graphs Direct relationship one goes up so does the other One goes down so does the other Inverse relationship one goes down and the other goes up and vise versa Remember Slope is rise run or Y X Independent relationship one goes ip or down while the other stays constant PRICE IS ALWAYS ON THE Y AXIS OF THE ECONOMIC GRAPH Movement along a graph a change in one variable on the coordinate graph Shift in a graph a third variable not graphed has changed