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Economics 101 Installment #1Economics: 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 conclusionBE 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 predictCeteris Paribas: certain variables change while other don’t (must be true to test theory)Macroeconomics: study of decision making for the economy as a wholeMicroeconomics: study of the decision making of a single individual, household, firm, industry, or government levelPositive 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 costScarcity: 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 CAPITALLand: 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 workersEntrepreneurs: type of labor, seek profits at a risk, combine resources to make a new productCapital: human-made goods (machines) that are used to produce other goodsMONEY IS NOT CAPITAL (Money is FINANCIAL capital and is used to buy capital)GraphsDirect 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/XIndependent relationship: one goes ip or down while the other stays constantPRICE IS ALWAYS ON THE Y AXIS OF THE ECONOMIC GRAPHMovement along a graph=a change in one variable on the coordinate graphShift in a graph=a third variable, not graphed, has

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CLARK ECON 101 - Economics

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