ECON101 Study Guide
Unit 1: Introduction to Economics
1a. Identify how individual economic agents make rational choices given scarce resources, and explain how to optimize the use of resources at hand
- Define scarcity and market.
- How does scarcity affect prices?
- When a commodity becomes more scarce, how does its price change to reflect the scarcity?
- How does the shortage or surplus of a commodity affect its price in the marketplace?
Scarcity is one of the most important concepts in economics. If resources are not scarce, there is no need to choose among alternatives. In a capitalist economy, when commodities and resources are scarce, the market distributes them in a way that is determined by the price system.
Review scarcity in the market in The Problem of Scarce Resources.
1b. Apply the concept of marginal analysis to make optimal choices, and identify whether the choices are efficient or equitable
- Define the concepts of opportunity cost and marginal analysis.
- Define economic model and the fallacy of false cause.
- Define hypothesis testing in the context of economics.
- How do economists use normative and positive statements?
- Define sunk costs and budget constraints.
As you review microeconomics, you need to be sure you have mastered some important calculus concepts, such as graphs, variables, and constants. Economists use the scientific method in most economic analysis. Specifically, they examine the marginal benefits and marginal costs of a decision to determine the optimal choice for an individual or company.
Review marginal benefits and marginal costs in:
Review data representation and mathematics for economics in:
- Types of Data Representation
- Graph from Slope-Intercept Equation
- How Individuals Make Choices based on their Budget Constraint
1c. Apply basic economic models related to production, trade, and the circular flow of resources
- Define economic production, specialization, trade, and the circular flow of resources.
- Define the circular flow model of production, resources, and money.
Economists have created some basic models to illustrate how people deal with scarcity: specialization, trade, and the circular flow of resources. Individuals and societies specialize in certain products or activities to maximize productivity, to focus on the activities they are most productive in. Trade describes the way individuals and societies exchange goods and services, according to their needs, according to their specialization.
Think about the things or skills you personally specialize in and trade with others. For example, do you work in a certain profession because you have skills or talents your employer needs and is willing to pay you to perform? Do you use the income you earn from this specialization to buy goods and services you need from others?
Review specialization and trade models in What Economics Is and Why It's Important.
Unit 1 Vocabulary
- Budget constraint
- Circular flow of resources
- Economics
- Economic model
- Economic production
- Fallacy of false cause
- Flow of resources
- Hypothesis testing
- Implied cost
- Marginal analysis
- Market
- Microeconomics
- Net benefit
- Normative statement
- Opportunity cost
- Out-of-pocket choice
- Positive statement
- Profit margin
- Scarcity
- Scientific method
- Specialization
- Sunk costs
- Trade