Economics is the study of human behavior.
The word 'economy' comes from the Greek word 'oikonomos', which means 'one who manages a household.'
Efficiency refers to society getting maximum benefits from its scarce resources, while equality means benefits are distributed uniformly among society's members.
Growth in the quantity of money leads to inflation.
An economist's advice is only one ingredient in the complex recipe of decision-making.
An economist analyzes the data to test the hypothesis.
They represent the combinations of meat and potatoes that each can produce in 8 hours per day.
Economists use models for simplification of reality to improve understanding of the world.
They may benefit from specializing and trading instead.
Households own factors of production such as labor, land, and capital.
No, the rancher's land is not well suited for growing potatoes.
The demand curve traces out the effect of a good’s price on the quantity of the good consumers want to buy.
The PPF is a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.
Yes, they should still trade to maximize efficiency and benefits.
People respond to incentives.
Economics studies human behavior and how society manages scarce resources, including how people make decisions and interact.
International competition has far less impact on standards of living compared to other factors.
Yes, there are many disciplines in economics, but some basic principles appear in all of them.
Prices rise when the government prints too much money.
The government can affect the distribution of wealth, impacting the trade-off between maximizing benefits from resources and ensuring fair distribution.
Markets for goods and services and markets for factors of production (inputs).
A decrease in the supply of oil will lead to higher oil prices, assuming demand remains constant.
Rational people systematically and purposefully do the best to achieve their objective.
They were policy advisors for Obama.
It implies that to obtain something desirable, one must give up something else of value.
Trade allows countries to exchange goods and services, leading to increased efficiency, access to a wider variety of products, and overall economic growth.
Students often face the trade-off between sleep and studying.
By examining evidence.
In the short run, inflation and unemployment are pushed in opposite directions due to the trade-off created by increasing the quantity of money.
Resources devoted to national defense cannot be used for other purposes like building roads or scholarships.
The PPF is typically bowed outward.
Property rights are the ability of an individual to own and exercise control over scarce resources.
Governments can intervene to correct market failures, provide public goods, and ensure fair competition, which can lead to better overall economic outcomes.
It must have some parts manufactured from various countries.
Market power is the ability of a single economic actor or a small group of actors to have a substantial influence on market price.
Reverse causality occurs when economists misinterpret the direction of causation between two variables.
Omitted variables can lead to deceptive graphs.
The outer set of arrows shows the flow of dollars.
Opportunity cost, trade-off, efficiency, and economic growth.
It helps to understand opportunity cost, trade-offs, efficiency, and economic growth.
The inner set of arrows shows the corresponding flow of inputs and outputs.
Graphs serve as a visual representation of ideas and provide a powerful way of finding and interpreting patterns in economic data.
Examples include pie charts, bar graphs, and time series graphs.
A visual model of the economy that shows how dollars flow through markets among households and firms.
Presidents rely on economists to guide them in making informed policy decisions.
The cost of something is what you give up to get it, which includes everything sacrificed to obtain an alternative.
Economists often disagree due to differences in perception versus reality, where their interpretations of data and economic conditions can vary significantly.
18 ounces
Productivity is the source of living standards.
Society faces a trade-off where increasing inflation can lead to lower unemployment in the short run.
Meat and Potatoes
A country's standard of living depends on its ability to produce goods and services.
Economists sometimes disagree due to different hunches about the validity of alternative theories or about the size of important parameters that measure how economic variables are related.
Firms and households.
Departments such as the treasury, labor, central banks, and justice rely on input from economists.
Opportunity cost refers to whatever must be given up to obtain an item.
Two hours
Perception can lead to differing conclusions about economic policies and outcomes, as individuals may interpret the same data in various ways based on their beliefs or experiences.
Economists may disagree due to differing views on the validity of alternative positive theories, such as the relationship between higher minimum wages and unemployment.
32 ounces
Firms produce goods and services.
Reducing income inequality is more important than maximizing economic growth.
People respond differently to the same incentives, as illustrated by giving scores on a test.
The central bank should lower interest rates to stimulate economic growth.
A marginal change is a small incremental adjustment to a plan of action.
Specialization increases productivity and efficiency, which in turn enhances the benefits of trade as countries can produce what they are best at and trade for other goods.
The cost of any action is measured in terms of forgone opportunities.
People respond to incentives.
The slope is infinite.
Movement along a curve refers to changes in quantity demanded due to price changes, while a shift in the curve indicates a change in demand due to other factors.
Markets are a good way of coordinating economic activity among people.
Economists study how people make decisions, how they interact, and the forces and trends that impact the economy.
Trade allows Frank to consume at point A* rather than point A, resulting in more meat and more potatoes.
An economist makes a hypothesis.
Governments can improve market outcomes by promoting equality through welfare policies or taxes to change how resources are distributed.
Microeconomics is the study of how households and firms make decisions and how they interact in markets.
It is not possible for an economist to conduct experiments like studying inflation vs gravity.
The coordinate system allows for the display of two variables on a single graph.
Economists pay close attention to natural experiments offered by history.
It is the amount of the other good that must be given up to produce the first good.
The slope is a negative number.
The current inflation rate in Pakistan is 24.76% compared to 12.15% in 2022.
Negatively related variables create a downward sloping curve where the variables move in opposite directions.
Minimum wage creates unemployment.
A market economy is one that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.
Governments promote efficiency by enforcing rules, maintaining order, and preventing market failures.
Different assumptions are used by economists to answer different questions and study short/long-run effects.
The art lies in deciding which assumption to make for a given economic analysis.
Business cycles are fluctuations in economic activity, including changes in employment and production.
Reality provides the factual basis for economic analysis, but differing interpretations of this reality can lead to disagreements among economists.
They serve as policy advisors.
The invisible hand can lead to increased disparities in economic well-being, as seen in the comparison between a cricketer and other athletes.
Households consume goods and services.
A positive statement is descriptive, while a normative statement is prescriptive.
The cost of something is what you give up to get it.
Countries can obtain good prices for their exports and buy cheaper products than local production.
Macroeconomics looks at the economy as a whole.
The slope is zero.
Rational people take decisions if and only if the marginal benefit (MB) is greater than the marginal cost (MC).
Productivity is mainly dependent on education, skills, equipment, and available technology to workers.
The marginal benefit of talking to a friend for 10 minutes is Rs. 25.
Governments can help by preventing market failure or promoting economic equality.
Free market economies are generally more successful compared to planned economies.
Cattle Rancher: Ruby and Farmer: Frank
An incentive is something (punishment or rewards) that induces a person to act.
Slope = rise/run
Voluntary trade is a positive sum game, meaning it can make everyone better off.
Claims that attempt to describe the world as it is.
Moving from Point A to Point G on the PPF signifies an increase in the production of both goods due to economic growth.
Macroeconomics is the study of economywide phenomena, including inflation, unemployment, and economic growth.
Households are sellers and firms are buyers.
Point D signifies an inefficient level of outcome, as it is located inside the PPF.
Economic models are built with many assumptions.
Comparative advantage allows countries to specialize in the production of goods they can produce most efficiently, leading to mutually beneficial trade.
Governments should raise the minimum wage.
Pakistan, Vietnam, or Bangladesh.
Market failure occurs when the market, left on its own, fails to allocate resources efficiently.
An externality is the impact of one person’s actions on the well-being of a bystander.
Aristotle termed economics as a science of 'household management.'
Society faces a short run trade-off between inflation and unemployment.
Trade-offs in decision-making involve comparing the costs and benefits of alternative choices.
An outward shift of the PPF indicates economic growth and advancement in technology, allowing for more production of both goods.
Microeconomics focuses on individual parts of the economy, such as how households and individual businesses make decisions.
Because individuals and countries have different resources and skills, leading to specialization.
Policymakers need to remember that people respond to incentives and consider marginal benefits and marginal costs.
Higher federal budget deficits will cause interest rates to increase.
It is measured in terms of the other good.
Because they involve subjective values.
The growth rate of productivity determines the growth rate of average income in a country.
The cost of a phone call is Rs. 0.50 per minute.
It refers to decisions about what to produce, how much to produce, and who would produce and consume.
In the USA.
In Pakistan or some other country.
An example of disagreement is how much to tax households and the impact of tax changes.
Economists are scientists and use scientific methods with appropriate assumptions.
The different types of incentives include economic incentives, social incentives, and moral incentives.
It shows the productivity of labor in the US over time.
Rational people are aware that decisions are rarely black and white and consider marginal benefits and costs.
Households are buyers and firms are sellers.
Points A, B, E, and F indicate efficient levels of production where the economy is utilizing all its scarce resources.
Firms use factors of production (inputs).
A societal example is the trade-off between national defense and consumer goods and services.
It represents the opportunity cost of producing one good in terms of the other good.
Positively related variables create an upward sloping curve where the variables move in the same direction.
South Korea or Japan.
The opportunity cost of cars is lowest when the economy is producing fewer cars and many computers.
Studying for a test is an example of thinking at the margin.
It shows how US national income is derived from various sources.
Both would like to eat meat and potatoes
A scatter plot is a graph that displays two variables on a single graph using ordered pairs of points (x and y coordinates).
Markets for goods and services, and markets for factors of production.
Point C represents an outcome that is not feasible due to scarcity.
Policy rates.
Individuals face trade-offs among alternative goals.
The two basic models include the circular flow diagram and the production possibilities frontier.
No, the farmer is not good at producing meat.
A trade-off occurs when producing more of one good requires producing less of another good, such as moving from point A to B.
In China, with parts from other countries.
The opportunity cost of cars is highest when the economy is producing many cars and fewer computers.
A fundamental aspect of economics is that society has limited resources, similar to a household, which affects the production of goods and services.
Prices and self-interest guide the decisions.
Adam Smith stated that households and firms interacting in markets act as if 'led by an invisible hand' to promote general economic well-being.
They act as scientists.
Economists may have different normative views about what policies should aim to accomplish, such as differing opinions on government involvement in universal healthcare.
5 ounces of meat for 15 ounces of potatoes
Specialization refers to the process where individuals or entities focus on a limited scope of production to gain greater degrees of efficiency.
It causes inflation, which is an increase in the overall level of prices in the economy.
The slope is a large positive number.
The faster the government prints money, the greater the inflation rate.
Rational people think at the margin.
Pakistan exports rice and other goods while importing crude oil.
Rational people make decisions after comparing marginal benefits (MB) and marginal costs (MC).
Governments are needed to enforce property rights, maintain order, promote efficiency, and avoid market failures.
Trade can benefit individuals and economies.
Assumptions simplify the complex world and make it easier to understand economic phenomena.
Market failure can be caused by externalities, such as pollution, and market power, like monopolies.
A country's standard of living depends on its ability to produce goods and services.
An example of opportunity cost is the time spent coming to class, which could have been used for the next best alternative.
It compares average income in 4 countries.
Trade allows both parties to gain from one another.
The slope is a small positive number.
Each person's production possibilities frontier is also their consumption possibilities frontier.
Economic models allow us to see what's truly important by omitting many details.
Economists often disagree due to differences in values or scientific judgments.
Examples include seat belt laws, oil reserves management, and cigarette taxes.
Productivity is the quantity of goods and services produced from each unit of labor input, and it is directly related to living standards.
An example is the U.S. during Barack Obama's presidency from 2008 to 2009, where the trade-off between inflation and unemployment was evident.
Scarcity refers to the limited nature of society’s resources, meaning that society cannot produce all the goods and services that people wish to have.
Markets facilitate voluntary exchanges between buyers and sellers, which can lead to efficient allocation of resources and innovation.
Yes, because the marginal benefit (Rs. 25) is greater than the marginal cost (Rs. 5).
The example of a pen dropping illustrates how assumptions can simplify complex scenarios.
Society faces a short-run trade-off between inflation and unemployment.
Trade enables Ruby to consume at point B* instead of point B, allowing her to have more meat and more potatoes.
Economic models are made of diagrams and equations.
The circular flow diagram and the Production Possibility Frontier (PPF).
People face trade-offs.
In the short run, increasing the quantity of money leads to higher spending and demand, causing firms to hire more workers and produce more, which lowers unemployment but increases inflation.
Claims that attempt to prescribe how the world should be.
Increasing the quantity of money leads to higher spending and demand, which encourages firms to hire more workers, thereby lowering unemployment.
It implies making decisions based on the comparison of marginal benefits and marginal costs.
Advantages of specialization include increased efficiency, higher quality of goods, and the ability to produce at a lower cost.
People benefit from being able to buy a variety of goods that may not be available locally.
Trade allows individuals and countries to specialize in what they do best, leading to increased efficiency and a greater overall output of goods and services.
The average income per month is $7,900 in the US, $296 in Pakistan, $430 in India, and almost $3,000 in China.
Firms decide who to hire and how much to make, while households decide where to work and how much to buy.
Diamonds have high value due to their scarcity, while water, despite being essential, is often less valued because it is abundant.
