MASTERY TEST Flashcards
“Economics is a social science, not a physical science.”
Jim Stanford
It is the study of human efforts to satisfy what appears to be unlimited and competing wants through the careful use of relatively scarce resources.
Economics
It deals with the behavior of people as they cope with the fundamental problem of scarcity.
Economics as a Social Science
Using real-life scenarios to build models that are used to make assumptions.
Economics as a Social Science
The country’s unemployment rate is 5.1 percent.
POSITIVE ECONOMIC STATEMENT
POSITIVE ECONOMIC
STATEMENT
- realities that can be proved or disproved, supported, or rejected by reference to facts.
- must be subject to verification or reputation by reference to the facts.
Realities that can be proved or disproved, supported, or rejected by reference to facts.
POSITIVE ECONOMIC
STATEMENT
Must be subject to verification or reputation by reference to the facts.
POSITIVE ECONOMIC
STATEMENT
The present unemployment rate should be lower.
NORMATIVE ECONOMIC STATEMENT
NORMATIVE ECONOMIC
STATEMENT
- represents an opinion
- cannot be approved or disproved, nor shown to be true or false by reference to facts.
MAJOR DIVISIONS OF ECONOMICS
- MICROECONOMICS
- MACROECONOMICS
It represents an opinion
NORMATIVE ECONOMIC
STATEMENT
It cannot be approved or disproved, nor shown to be true or false by reference to facts.
NORMATIVE ECONOMIC
STATEMENT
Greek prefix “_____” which means small.
mikro
Studies the economic behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.
MICROECONOMICS
Individual market and individual consumer behavior
MICROECONOMICS
Greek prefix “_____” which means large.
makro
Studies the performance of the economy as a whole.
MACROECONOMICS
Deals with economy-wide sum such as total production.
MACROECONOMICS
Monetary policy, economic growth, inflation, unemployment, and government borrowing.
MACROECONOMICS
It is a basic requirement for survival.
Need
These are physiological needs, safety needs, love and belonging, esteem needs, and self-actualization needs.
Needs
It is something that is desired.
Want
It is a means of expressing a need. Food, for example, is a basic need related to survival. To satisfy this need, a person may “want” a pizza, hamburger, or other food.
Want
It is a tangible commodity.
Good
intended for final use by individuals. Ex: food, appliances, clothing, and automobiles.
Consumer Good
a manufactured good used to produce other goods and services.
Capital Good
any good that lasts three years or more when it is used on a regular basis.
Durable Good
provided for public use.
Public Good
Examples of Public Good
-public museums
-libraries.
Examples of Durable Good
- furnitures
- cars
- consumer electronics.
Examples of Capital Good
- machinery
- tools.
Examples of Consumer Good
- food
- appliances
- clothing
- automobiles
Economic Products
- Goods
- Services
It is a work that is performed for someone.
Service
It is something that cannot be touched or felt.
Service
It include haircuts, home repairs, and forms of entertainments.
Service
Resources —-X—-> Needs and Wants
SCARCITY OF PRODUCTIVE RESOURCES
FACTORS OF PRODUCTION
- Land
- Capital
- Labor
- Entrepreneurs
Refers to the “gift of nature”, or natural resources not created by human effort.
Land
Include the tools, equipment, and factories used in the production of goods and services.
Capital
Refers to all people with all their efforts, abilities, and skills except for a unique group of individuals, called entrepreneurs.
Labor
Refers to innovators responsible for much of the change in the economy. They are risk-taker in search of profits.
ENTREPRENEURS
HE STATES THAT THE FOUR FACTORS OF PRODUCTION PROVIDE THE MEANS FOR SOCIETY TO PRODUCE AND DISTRIBUTE ITS GOOD AND SERVICES.
CLAYTON (1995)
Remember, goods and services are scarce because the factors of production used to produce them are scarce. In case you have forgotten, scarcity is described as limited quantities of resources to meet unlimited wants. Consider a pair of denim blue jeans. The denim is made of cotton, grown on the land. The land and water used to grow the cotton is limited and could have been used to grow a variety of different crops. The workers who cut and sewed the denim in the factory are limited labor resources who could have been producing other goods or services in the economy. The machines and the factory used to produce the jeans are limited capital resources that could have been used to produce other goods. This scarcity of resources means that producing some goods and services leaves other goods and services unproduced.
The four factors of production are interconnected in many ways.
THREE BASIC ECONOMIC QUESTIONS
- WHAT TO PRODUCE?
- HOW TO PRODUCE?
- FOR WHOM TO PRODUCE?
IS THE THIRD QUESTION. AFTER SOCIETY DECIDES WHAT TO PRODUCE AND HOW TO PRODUCE THEM, THE ITEMS PRODUCED MUST BE ALLOCATED TO SOMEONE.
FOR WHOM TO PRODUCE?
IS THE SECOND QUESTION SHOULD A FACTORY OWNER USE ASSEMBLY-LINE METHODS THAT REQUIRE LITTLE LABOR, OR SHOULD THEY USE LESS EQUIPMENT AND MORE WORKERS? IF AN AREA HAS MANY UNEMPLOYED PEOPLE, THE SECOND METHOD MIGHT BE BETTER. ON THE OTHER HAND, ASSEMBLY LINE METHOD IN COUNTRIES WHERE CAPITAL IS WIDELY AVAILABLE USUALLY HAVE LOWER PRODUCTION COSTS. LOWER COSTS MAKE MANY LESS EXPENSIVE MANUFACTURED ITEMS AND THEREFORE, AVAILABLE TO MORE PEOPLE.
HOW TO PRODUCE?
IS THE FIRST QUESTION SHOULD A SOCIETY DEVOTE MOST OF ITS RESOURCES TO PRODUCING MILITARY EQUIPMENT OR THE OTHER ITEMS SUCH AS FOOD, CLOTHING, OR HOUSING.
WHAT TO PRODUCE?
is the study of economics in relation to real life situations.
Applied Economics
is the study of observing how theories work in practice.
Applied Economics
It is the application of economic principles and theories to actual situations, and trying to predict what the outcomes might be.
Applied Economics
Applied economics may be practiced at these two levels below:
- Macroeconomic
- Microeconomic
analyzing individual consumers and companies
Microeconomic
the whole, aggregate economy
Macroeconomic
who is famous for his Say’s Law or the law of market,
Jean-Baptiste Say (1767-1832)
the British political economist, philosopher, and civil servant,
John Stuart Mill (1806-1873).
work, on the other hand, is on the Principles of Political Economy with Some of Their Applications to Social Philosophy.
John Stuart Mill (1848)
wrote about applying the
“general principles of political economy” to “ascertain the rule of action of any
combination of circumstances presented to us”
Jean-Baptiste Say
It is all about thinking things up,
Economic Theory
It is about trying things out.
Applied Economics
is the application of economic theory and econometrics in specific settings (Market
Business News 2016)
Applied economics
Points to learn…
• Robust background in applied economics allows people to make informed forecasts about future trends.
• Knowledge in applied economics provides the student with a broader perspective on the application of economic theory to real world issues but less knowledge of core economic theory.
• Applied economics is the application of economic theory and econometrics in specific settings (Market
Business News 2016)
is defined as a well substantiated explanation of some aspects of the natural world.
Theory
is defined as a theory on commercial activities such as the production and consumption of goods.
Economic Theory
MALTHUSIAN THEORY OF
POPULATION GROWTH
Thomas Robert Malthus,
an English cleric and scholar, examined the relationship between population growth and resources.
Thomas Robert Malthus,
If every member of a family tree reproduces, the tree will continue to grow with each generation.
MALTHUSIAN THEORY OF
POPULATION GROWTH
ADAM SMITH AND THE WEALTH OF NATIONS
Adam Smith
a Scottish economist and philosopher, was a pioneer in political economy and modern economics.
Adam Smith
His best-known work “An Inquiry into the Nature and Cause of the Wealth of Nations” commonly called “ The Wealth of Nations” was published in 1776.
Adam Smith
Wealth of nations was published in.
1776
The book offers a detailed description of life and trade in English society. It also scientifically describes the basic principles of economics.
ADAM SMITH AND THE WEALTH OF NATIONS
Economic ideas of Adam Smith
• Productivity and Wealth
• Invisible Hand
• Laissez-Faire
The Wealth of Nations was ridiculed by aristocracy in parliament at that time. Business people, however, were delighted to have a moral justification for their growing wealth power. Eventually, the doctrine of laissez-faire, meaning no government intervention in economic affairs, became the watchword of the day in Great Britain.
• Laissez-Faire
One of Smith’s most important contributions deals with the competition in the marketplace. He argued that competition, together with the free market system, would act as an invisible hand that would guide resources to their most productive use.
He also believed that under competitive conditions, individuals acting naturally in their own self-interest would bring the greatest good for society as a whole.
Invisible Hand
Smith observed that labor becomes more productive as each worker becomes more skilled at a single job. He also said that new machinery and the division and specialization of labor would lead to an increase in production and greater wealth for the nation.
Productivity and Wealth
is a doctrine that claims that an economic system should be free from government intervention or moderation, and be driven only by the market forces. It is centered on the belief that when humans are self-interested and, when they are not interfered, a balanced system of production and exchange, arises.
laissez-faire
laissez-faire
laissez-faire
MODERN
ECONOMIC THEORIES
- Consumerism-
- Keynesianism-
- Liberalism-
- Monetarism-
- Utilitarianism-
is the application of statistical and mathematical theories in economics for the purpose of testing hypotheses and forecasting future trends.
Econometrics
Points to learn…
• An example of real-life application of econometrics would be to study to income effect. An economist may hypothesize that as a person increases his income, his spending will also increase. The hypothesis can be tested and proven using econometric tools like frequency distributions or multiple regression analysis.
Without evidence, economic theories are abstract and might have no bearing on reality.
According to Judge (2017), the following are the goals of studying econometrics:
The first goal is to test a hypothesis. It allows you to conduct applied econometric studies of your own, which can be very useful if you are also doing a dissertation.
The second goal is to critically assess the empirical work of others. This can be helpful when discussing the relevant academic literature in any other module and to be able to comment on why a particular technique may or may not be appropriate can often be impressive.
bases the moral worth of an action upon the number of people who derive happiness or pleasure from it.
Utilitarianism
states that an increasing consumption of goods is economically beneficial.
Consumerism
popularized by John Maynard Keynes, advocates government monetary and fiscal programs intended to stimulate business activity and increase employment.
Keynesianism
advocates free competition and self- regulating market.
Liberalism
states that variation in unemployment and the rates of inflation are usually caused by changes in the supply of money.
Monetarism
uses a combination of economic theory, math, and statistical inferences to quantify and analyze economic theories by leveraging tools such as frequency distributions, probability and probability distributions, statistical inference, simple and multiple regression analysis, simultaneous equations models, and time series methods.
Theoretical econometrics
It takes economic models to be tested through statistical trials.
Econometrics
The results are then compared and contrasted against real-life examples.
Econometrics
can be therefore be divided into two major categories: theorical and applied.
Econometrics
It is used when making social, economic, or political decision for the “betterment of society.’
Utilitarianism
