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Eco 101: Chapter 1 Notes

This document defines key economic concepts such as scarcity, opportunity cost, and different types of goods and resources. It explains that economics involves making choices due to limited resources. Goods are either economic, free, or economic bads depending on whether supply meets demand at a price of zero. Resources include land, labor, capital and entrepreneurship which receive payments of rent, wages, interest and profit.

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145 views

Eco 101: Chapter 1 Notes

This document defines key economic concepts such as scarcity, opportunity cost, and different types of goods and resources. It explains that economics involves making choices due to limited resources. Goods are either economic, free, or economic bads depending on whether supply meets demand at a price of zero. Resources include land, labor, capital and entrepreneurship which receive payments of rent, wages, interest and profit.

Uploaded by

workexperience
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Eco 101: Chapter 1 notes

Definition of economics
 the study of how individuals and
societies use limited resources to satisfy
unlimited wants.
Fundamental economic problem
 scarcity.
 individuals and societies must choose
among available alternatives.
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
Economic resources
 land
 natural resources, the “free gifts of nature”
 labor
 the contribution of human beings
 capital
 plant and equipment
 this differs from “financial capital”
 entrepreneurial ability
Resource payments
Economic Resource Resource payment
land rent
labor wages
capital interest
entrepreneurial ability profit
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
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.
Economic methodology
 scientific method
 observe a phenomenon,
 make simplifying assumptions and
formulate a hypothesis,
 generate predictions, and
 test the hypothesis.
Simplifying assumptions
 ceteris paribus – holding everything else
constant
 abstraction in economics
 used to simplify reality
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.
Microeconomics vs. macroeconomics
 microeconomics - the study of individual
economic agents and individual markets
 macroeconomics - the study of
economic aggregates
Algebra and graphical analysis
 direct relationship
Direct relationship
Inverse relationship
Linear relationships
 A linear relationship possesses a
constant slope, defined as:
Linear relationships
(continued)
 If an equation can be written in the
form: Y=mX+b, then:
m = slope, and
b = Y - intercept.

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