Denden

• Economics


  The study of how human beings coordinate their wants and desires
• Opportunity cost


  The value of the next best alternative that a decision forces the decision maker to forgo
• Abstraction


  Ignoring many details to focus on the most important elements of a problem
• Economic theory


  Deliberate simplification of relationships used to explain how those relationships work
• Economics is the most rigorous of the social sciences, nevertheless looks decidedly more "social" than "scientific" when compared with, say, physics
• An economist must be a JACK-OF-SEVERAL-TRADES borrowing modes of analysis from numerous fields
• Mathematical reasoning used prominently in economics, but so is historical study
• Degree of abstraction and simplification


  There is no such thing as one "right" degree of abstraction and simplification for all analytic purposes. The proper degree depends on the purpose of the analysis
• It is precisely the concern for economic policy that makes economic theory so necessary and important
• Correlation


  Two variables tend to go up or down together
• Correlation need not imply causation
• Economic model


  A simplified, small-scale version of an aspect of the economy, often expressed in equations, graphs, or words
• Economic graphs are invaluable because they can display a large quantity of data quickly and because they facilitate data interpretation and analysis
• Variable


  Something measured by a number, used to analyze what happens to other things when the size of that number changes (varies)
• Horizontal axis


  One variable is measured along the horizontal line at the bottom of the graph
• Vertical axis


  The numerical value of the other variable is measured up the vertical line on the left side of the graph, starting from the origin (the point labeled "0")
• Slope


  The ratio of the vertical change to the corresponding horizontal change as we move to the right along a straight line between two points on that line, or the ratio of the "rise" over the "run"
• Factors of production


  • Land
  • Labor
  • Capital
  • Natural resources
  • Entrepreneurship
• Outputs


  The goods and services produced by a firm or an economy
• Gross Domestic Product (GDP)


  The sum of the money values of all final goods and services produced in a domestic economy
• Open economy


  An economy where exports and imports constitute a large share of its GDP
• Relatively closed economy


  An economy where exports and imports constitute a small fraction of GDP
• The Netherlands is considered an extremely open economy because it imports and exports more than three-quarters of its GDP, while the United States stands out as the most closed economy among the advanced, industrial nations
• The owners and managers of businesses hire people, acquire or rent capital goods, and arrange to produce things consumers want to buy
• Traditional roles of government in a market economy

  • Making and enforcing the laws
  • Regulating business
  • Providing certain goods and services such as national defense
  • Levying taxes to pay for these goods and services
  • Redistributing income
• Government as referee


  The legislative, executive, and judicial branches share responsibility for making, enforcing, and interpreting the rules of the economic game
• Transfer payments


  Sums of money that the government gives certain individuals as outright grants rather than as payments for services rendered to employers
• Progressive tax


  A tax in which the average tax rate paid by an individual rises as income rises
• Mixed economy


  An economy with some public influence over the workings of free markets
• Types of resources


  • Natural resources (minerals, soil, water, air)
  • Labor
  • Factories and machines
• Optimal decision


  The one that best serves the objectives of the decision maker, whatever those objectives may be
• Inputs


  The labor, raw materials, electricity, and other resources used by a firm or an economy to produce its outputs
• Production possibilities frontier


  A curve that shows the maximum quantities of outputs it is possible to produce with the available resource quantities and the current state of technological knowledge
• Principle of increasing costs

  As the production of a good expands, the opportunity cost of producing another unit generally increases
• Three coordination tasks of any economy


  • How to utilize its resources
  • Which of the possible combinations of goods to produce
  • How much of the total output of each good to distribute to each person
• Productive efficiency


  The absence of waste in the utilization of resources
• Division of labor


  Breaking up a task into several smaller, more specialized tasks so that each worker can become more adept at a particular job
• Specialization and exchange


  Working in tandem, led to vast increases in the abundance that the more prosperous economies of the world were able to supply
• Market system


  A form of economic organization in which resource allocation decisions are left to individual producers and consumers acting in their own best interests without central direction
• Republic of the Philippines