CHAPTER 1 Econ READING OUTLINE

Answer the following questions in your own words and submit the completed file on
I-Learn.
1. Describe the economic way of thinking, including definitions of purposeful
behavior, utility, opportunity costs, marginal costs, marginal benefits and how
these concepts may be used in decision-making.
Economic perspective- A way in which people make rational decisions by comparing
cost versed benefits. We weigh the marginal benefit-the gain, satisfaction, and
utility (usefulness) with the marginal cost- what is sacrificed. Purposeful behavior is
not random it has a meaning and a purpose. There is a cost to every choice called
the opportunity cost. Everyones opportunity cost will be different. As we make
rational decisions by allocate time, money and resources to maximize the benefits.
2. Explain ceteris paribus and why it is important when analyzing relationships.
Variables are held constant and do not change for a particular analysis. It is
important because it is usually hard to isolate all the different variables that may
change the outcome of a decision made. Without using the words all else is
constant it can be impossible to identify the true effect of one variable on another.
Its then we can see how each variable affects the other without interference of
other outside influences.
3. Differentiate between micro- and macroeconomics.
In Micro an individual consumer or industry discussion making is examined. Macro is
the entire economy that is examined.
4. Differentiate between positive and normative economics.
Positive economics can be supported or disproved with data. It is not subjective.
Normative is what ought to be and is subjective with different opinions.
5. Explain the economizing problem from the individuals perspective
Individuals have limited income and unlimited wants. The individual has to decide
what to purchase and what they dont purchase.
6. Explain a budget line and how to construct it.
A budget restraint, it is the greatest combination of two goods that can be
purchased with certain amount of income. Reflecting and shifting to show higher
and lower incomes. It illustrated how much of one good must be sacrificed to get
more of another good.

7. Identify types of economic resources and types of income associated with

various factors.
Resources are used in the production of other goods and services. Land, Labor,
Capital, and Entrepreneurial abilities are all factors of production.
Land- Natural resources are needed to make good
Labor-Human resources are needed physically and mentally for production
Capital- Anything man-made that is used to produce the desired product
Entrepreneurs-people to take risks. The driving force in hopes to become profitable.
8. Explain what the production possibilities curve (PPC) demonstrates and the
assumptions to be on the curve.
8.1.Explain what will shift the PPC out and in. When the economy grows and
all other things remain constant, we can produce more, which will cause
the shift outward.-to the right, because output increased. This can
happen if you have technological advances, capital, or increased labor
force. These increase and change productivity. If capital equipment fail
and output decreases it will cause the shift to go left or go inward.
8.2.Explain what will move you away from or toward the PPC. If resources or
technology of society change, such as unemployment rate it will move
away. It will move inward when resources are being used more
effectively.
8.3.Explain how a societys decision to produce capital (i.e., machinery) or
consumer goods will impact future growth. If the economy chooses to
produce today determines the amount of growth the economy will
experience in the future. If society decides not to manufacture and
produce capital than society will not have the direct produces they need
and want. This will have a negative effect on economic growth for the
future.
9. Explain and give examples of the fallacy of composition, post hoc fallacy, and
other logical pitfalls.
Fallacy of composition-Drawing conclusions for your own situation but if everyone
else did it, it wouldnt work out. It happens when an individual assumes something
is true of some part of the whole. You decided to get in line early to be the first one
into the park but everyone else had the same idea, so you have to wait in line with
everyone else. You decided to save money and didnt buy anything but everyone
else did the same, this would have negative impact on economic growth. You stood
up to see over peoples heads in front of you, but they stood up as well.
Post hoc fallacy-Jumping to conclusions. Events are related but it doesnt mean that
one actually caused the other. You wear your lucky socks playing your game, so you
say thats why you won. I washed my car thats why it rained. Most superstitions.

Other logical Pitfalls-exaggerations or biases due to preconceived notions and error

in reasoning. Politicians or media using words that carry meaning beyond the
definition.
10. Explain a direct and inverse relationship between two variables and give an

example of each. Direct is a positive relationship where the two variables move
together. If a price of beef rises, the demands for the substitute item such as
pork will rise. The more you lift weights the stronger you will be.
Inverse relationship- A contrary relationship, the two variables more in opposite
directions. Price of hamburger increases so the demand for hamburger buns
decrease because not as many hamburgers are being sold. More sun is shining
the less cost on your electric bill.

11.Given the linear equation: Consumption = 100 + 0.25 (Income)

a Identify the dependent and independent variable?
b How much is consumption when income is zero?
c If ones income was $2,000, what is their estimated consumption?
12. Given a demand curve: P = 120 2Q and a supply curve of P = 20 + 3Q, where
P is the price of the good and Q is the quantity. Set the two equations equal and
solve for the equilibrium P and Q.
120-2Q=20+3Q
Q=20
P=80
C=600
13.Discuss the advantages and disadvantages of the major that you have chosen
and the tradeoffs associated with selecting that major.
Advantage in the major I chose is less time in school and no student loans. Tradeoff,
less options to make more money later but no extra debt to pay off.
14.Give one example of how the principles in this chapter currently impact your life
or relate to your chosen career. I have a limited amount of income. Choices have
to be made in regards to what I buy. At the grocery store I make rational
decisions. Rational self-interest is the goal because I want my family to eat what
I buy. This is an economizing problem because there is unlimited wants but
limited resources to buy all my families wants. Sacrifices have to made to get
the correct amounts and necessary items for that week.