29 What are the three building blocks in the economic way of thinking?What are the three building blocks in the economic way of thinking? What is the economic problem? What is meant by scarcity? What are resources? What are the three categories of resources? What is entrepreneurship? What is economics? What is macroeconomics? What is microeconomics?
30 What is the scientific method? What are the two common pitfalls in understanding how the economy works?What are the two common pitfalls in understanding how the economy works? Why do some economists disagree? What assumption is always made when testing a model?What assumption is always made when testing a model? What is ceteris paribus? What is the purpose of model building? What is positive economics? What is normative economics?
32 Scarcity is the fundamental economic problem that human wants exceed the availability to time, goods, and resources. Individuals and society therefore can never have everything they desire.
33 Resources are factors of production classified as land, labor, and capital. Entrepreneurship is a special type of labor. An entrepreneur combines resources to produce innovative products.
34 Economics is the study of how individuals and society choose to allocate scarce resources in order to satisfy unlimited wants. Faced with unlimited wants and scarce resources, we must make choices among alternatives.
35 Unlimited wants Scarcity Society Chooses Resources
36 Macroeconomics applies an economy wide perspective that focuses on such issues as inflation, unemployment, and the growth rate of the economy.
37 Microeconomics examines individual decision-making units within an economy. Microeconomics studies such topics as a consumer’s response to changes in the price of coffee and the reasons for changes in the market price of personal computers.
38 Models are simplified descriptions of reality used to understand and predict economic events. An economic model can be stated verbally or in a table, graph, or equation. If the evidence is not consistent with the model, the model is rejected.
39 Identify the problem Develop a model based on assumptions Collect data and test the model
40 Ceteris paribus holds “all other factors unchanged” that might affect a particular relationship. If this assumption is violated, a model cannot be tested. Another reasoning pitfall is to think association means causation.
41 Positive economics uses testable statements. Often a positive argument is expressed as an “if-the” statement. Normative economics is based on value judgments or opinions and uses words such as good, bad, ought to, and ought not to.