1. Eco 101: Chapter 1 notes

2. Definition of economics
the study of how individuals and societies use limited resources to satisfy unlimited wants.

3. Fundamental economic problem
scarcity.
individuals and societies must choose among available alternatives.

4. Economic goods, free goods, and economic bads
economic good (scarce good) - the quantity demanded exceeds the quantity supplied at a zero price.
free good - the quantity supplied exceeds the quantity demanded at a zero price.
economic bad - people are willing to pay to avoid the item

5. Economic resources land labor capital entrepreneurial ability
natural resources, the “free gifts of nature”
labor
the contribution of human beings
capital
plant and equipment
this differs from “financial capital”
entrepreneurial ability

6. Resource payments Economic Resource Resource payment land rent
labor wages
capital interest
entrepreneurial ability profit

7. Rational self-interest
individuals select the choices that make them happiest, given the information available at the time of a decision.
self-interest vs. selfishness

8. Positive and normative analysis
positive economics
attempt to describe how the economy functions
relies on testable hypotheses
normative economics
relies on value judgements to evaluate or recommend alternative policies.

9. Economic methodology scientific method observe a phenomenon,
make simplifying assumptions and formulate a hypothesis,
generate predictions, and
test the hypothesis.

10. Simplifying assumptions
ceteris paribus – holding everything else constant
abstraction in economics
used to simplify reality

11. Logical fallacies fallacy of composition
occurs when it is incorrectly assumed that what is true for each and every individual in isolation is true for an entire group.
post hoc, ergo propter hoc fallacy (association as causation)
occurs when one incorrectly assumes that one event is the cause of another because it precedes the other.

12. Microeconomics vs. macroeconomics
microeconomics - the study of individual economic agents and individual markets
macroeconomics - the study of economic aggregates

13. Algebra and graphical analysis
direct relationship

14. Direct relationship

15. Inverse relationship

16. Linear relationships
A linear relationship possesses a constant slope, defined as:

17. Linear relationships (continued)
If an equation can be written in the form: Y=mX+b, then:
m = slope, and
b = Y - intercept.