chapter 1 the art and science of economic analysis these slides supplement the textbook, but should...
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3 What assumption do we make? People behave in accordance to their own self interestTRANSCRIPT
![Page 1: Chapter 1 The Art and Science of Economic Analysis These slides supplement the textbook, but should not replace reading the textbook](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1aed7f8b9ab05997bca4/html5/thumbnails/1.jpg)
Chapter 1 The Art and Science of Economic AnalysisThese slides supplement the textbook, but should not replace reading the textbook
![Page 2: Chapter 1 The Art and Science of Economic Analysis These slides supplement the textbook, but should not replace reading the textbook](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1aed7f8b9ab05997bca4/html5/thumbnails/2.jpg)
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What is the economic problem?
Because we live in a world of scarce resources, but people have unlimited wants and needs, how do we meet their needs in this world of scarcity?
![Page 3: Chapter 1 The Art and Science of Economic Analysis These slides supplement the textbook, but should not replace reading the textbook](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1aed7f8b9ab05997bca4/html5/thumbnails/3.jpg)
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What assumption do we make?
People behave in accordance to their own self interest
![Page 4: Chapter 1 The Art and Science of Economic Analysis These slides supplement the textbook, but should not replace reading the textbook](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1aed7f8b9ab05997bca4/html5/thumbnails/4.jpg)
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What is rationale self interest?
People select the alternatives they expect will yield the most satisfaction and happiness
![Page 5: Chapter 1 The Art and Science of Economic Analysis These slides supplement the textbook, but should not replace reading the textbook](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1aed7f8b9ab05997bca4/html5/thumbnails/5.jpg)
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What is macroeconomics?The study of the economic behavior of entire economies
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What is microeconomics?
The study of the economic behavior in particular markets, such as the market for computers
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What is a good?A tangible item that is used to satisfy wants
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What is a service?An intangible activity that is used to satisfy wants
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What is afree good or service?
There is enough of a good or service to go around to everyone who wants it for free
![Page 10: Chapter 1 The Art and Science of Economic Analysis These slides supplement the textbook, but should not replace reading the textbook](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1aed7f8b9ab05997bca4/html5/thumbnails/10.jpg)
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What is a Scarce Good or Service? There is not enough of a good or service to go around to everyone who wants it for free
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When is a good or service scarce?
When the amount people desire exceeds the amount available to them at a zero price
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What is the allocation problem?The allocation problem is who gets and who does not get when something is scarce
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How do we decide who gets?
The price mechanism
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What is the price mechanism?
Those persons who get are those persons who want the scarce good the most and have the money to purchase it
![Page 15: Chapter 1 The Art and Science of Economic Analysis These slides supplement the textbook, but should not replace reading the textbook](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1aed7f8b9ab05997bca4/html5/thumbnails/15.jpg)
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What is the economic problem?
Because we live in a world of scarce resources, but people have unlimited wants and needs, how do we meet their needs in this world of scarcity?
![Page 16: Chapter 1 The Art and Science of Economic Analysis These slides supplement the textbook, but should not replace reading the textbook](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1aed7f8b9ab05997bca4/html5/thumbnails/16.jpg)
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What is a resource?Something that is used to produce goods and services
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What is a market?A set of arrangements through which buyers and sellers carry out exchange at mutually agreeable terms
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What is special about the market?Unless there is a market transaction we are not concerned about it in economics
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What are some examples of resources?
LandLaborCapitalEntrepreneurship
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What is land?Plots of ground and other natural resources used to produce goods and services
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What is labor?The physical and mental efforts of humans used to produce goods and services
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What is capital?Buildings, equipment, and human skills used to produce goods and services
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What is human capital?
The skills used to work with capital
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What isentrepreneurial ability?Managerial and organizational skills combined with the willingness to take risks
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What is income called from resources?
Land is rentLabor is wagesCapital is interestEntrepreneurship is profit
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What is rent?The payment resource owners receive for the use of their land
![Page 27: Chapter 1 The Art and Science of Economic Analysis These slides supplement the textbook, but should not replace reading the textbook](https://reader035.vdocuments.us/reader035/viewer/2022062401/5a4d1aed7f8b9ab05997bca4/html5/thumbnails/27.jpg)
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What are wages?The payment resource owners receive for their labor
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What is interest?The payment resource owners receive for the use of their capital
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What is profit?The return resource owners receive for their entrepreneurial ability
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How is profit calculated?Total revenue from sales minus the total cost of resources employed by the entrepreneur
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What is aproduct market?A market in which goods and services are exchanged
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What is aresource market?
A market in which resources are exchanged
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What does the term marginal mean?
A term used to describe the result of a change in an economic variable
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What is an economic model or theory?
A simplified description of reality to understand and predict an economic event
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What is a variable?A measure, such as price or quantity, that can take on different possible values
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What is the other-things-constant assumption?The assumption, when focusing on key economic variables, remains unchanged
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What is thebehavioral assumption?
An assumption that describes the expected behavior of economic actors
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What is an hypothesis?A statement about relationships among key variables
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What is a positive economic statement?A statement that can be proved or disproved by reference to facts
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What is a normative economic statement?A statement that represents an opinion, which cannot be proved or disproved
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What are some pitfalls of economic analysis?
Association-is-causation fallacy
Fallacy of compositionSecondary effects
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What is the association-is-causation fallacy?
The incorrect idea that if two variables are associated in time, one must necessarily cause the other
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What isfallacy of composition?
The incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or whole
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What aresecondary effects?
Unintended consequences of economic actions that develop slowly over time as people react to events
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