Podcast
Questions and Answers
Which of the following best defines the role of an economic agent?
Which of the following best defines the role of an economic agent?
- An entity that is solely involved in the production and distribution of goods.
- A person who is employed in the field of economics and provides financial advice.
- Any individual or group that primarily focuses on accumulating wealth.
- Any individual or group that makes choices in the face of scarcity. (correct)
Scarcity primarily affects only wealthy individuals who desire luxury goods.
Scarcity primarily affects only wealthy individuals who desire luxury goods.
False (B)
Provide an example of a scarce resource that is not typically considered a luxury item.
Provide an example of a scarce resource that is not typically considered a luxury item.
Clean drinking water
__________ economics involves objective descriptions of what people actually do, often verifiable with data.
__________ economics involves objective descriptions of what people actually do, often verifiable with data.
Which of the following is an example of a resource cost commonly associated with social media use?
Which of the following is an example of a resource cost commonly associated with social media use?
Match each scenario with its corresponding economic impact or consideration:
Match each scenario with its corresponding economic impact or consideration:
In economics, what is the unifying factor in all the things that economists study?
In economics, what is the unifying factor in all the things that economists study?
Studying in International Business Administration is an example of positive economics.
Studying in International Business Administration is an example of positive economics.
Which of the following best describes 'normative economics'?
Which of the following best describes 'normative economics'?
In economics, it is generally assumed that all economic agents primarily aim to maximize only their income.
In economics, it is generally assumed that all economic agents primarily aim to maximize only their income.
Define what economists mean by the term 'budget constraint'.
Define what economists mean by the term 'budget constraint'.
A situation where an individual benefits from a resource without contributing to its cost is known as the ______ problem.
A situation where an individual benefits from a resource without contributing to its cost is known as the ______ problem.
Match the following economic principles with their definitions:
Match the following economic principles with their definitions:
Which of the following scenarios is the best example of a 'feasible' option in economics?
Which of the following scenarios is the best example of a 'feasible' option in economics?
Economic models are exact representations of the real world, capturing every detail and complexity.
Economic models are exact representations of the real world, capturing every detail and complexity.
Briefly explain the difference between 'causation' and 'correlation'.
Briefly explain the difference between 'causation' and 'correlation'.
In the context of economics, if a relevant factor is ignored in an analysis, this factor is referred to as an ______ variable.
In the context of economics, if a relevant factor is ignored in an analysis, this factor is referred to as an ______ variable.
Which of the following best illustrates 'reverse causality'?
Which of the following best illustrates 'reverse causality'?
Which of the following actions aligns with the economic principle of 'optimization'?
Which of the following actions aligns with the economic principle of 'optimization'?
Macroeconomics primarily focuses on the behavior of individual consumers and firms.
Macroeconomics primarily focuses on the behavior of individual consumers and firms.
Provide an example of a situation demonstrating a 'positive correlation' between two variables.
Provide an example of a situation demonstrating a 'positive correlation' between two variables.
When economists use data to evaluate the validity of their models, they are engaging in ______.
When economists use data to evaluate the validity of their models, they are engaging in ______.
Which scenario demonstrates the concept of a 'trade-off'?
Which scenario demonstrates the concept of a 'trade-off'?
According to the law of demand, what happens to the quantity demanded of a good when its price increases?
According to the law of demand, what happens to the quantity demanded of a good when its price increases?
Willingness to pay for a good increases as you consume more of that good.
Willingness to pay for a good increases as you consume more of that good.
What is the process called when individual demand curves are added together to derive the market demand curve?
What is the process called when individual demand curves are added together to derive the market demand curve?
If an increase in income leads to a leftward shift in the demand curve for a good, that good is called an ______ good.
If an increase in income leads to a leftward shift in the demand curve for a good, that good is called an ______ good.
Match the following scenarios with the appropriate shift in the demand curve:
Match the following scenarios with the appropriate shift in the demand curve:
What happens to the demand curve if only the good's own price changes?
What happens to the demand curve if only the good's own price changes?
The law of supply states that as price decreases, quantity supplied increases.
The law of supply states that as price decreases, quantity supplied increases.
What term describes the lowest price a seller is willing to accept for an additional unit of a good?
What term describes the lowest price a seller is willing to accept for an additional unit of a good?
A good or service that is used to produce another good or service is called an ______.
A good or service that is used to produce another good or service is called an ______.
Which of the following factors would NOT cause a shift in the supply curve?
Which of the following factors would NOT cause a shift in the supply curve?
In a competitive market, the equilibrium price is found where the quantity supplied is greater than the quantity demanded.
In a competitive market, the equilibrium price is found where the quantity supplied is greater than the quantity demanded.
What condition occurs when the market price is above the competitive equilibrium price?
What condition occurs when the market price is above the competitive equilibrium price?
The point where the supply curve and the demand curve intersect is known as the competitive ______.
The point where the supply curve and the demand curve intersect is known as the competitive ______.
If the market price is below the competitive equilibrium price, which of the following situations occurs?
If the market price is below the competitive equilibrium price, which of the following situations occurs?
What is the difference between quantity demanded and demand?
What is the difference between quantity demanded and demand?
Which of the following is a key difference between a controlled experiment and a natural experiment in economics?
Which of the following is a key difference between a controlled experiment and a natural experiment in economics?
According to economists, a relevant and important question, combined with the ability to empirically answer it, improves social welfare.
According to economists, a relevant and important question, combined with the ability to empirically answer it, improves social welfare.
What are the key components when using 'Optimization in levels' to make a decision?
What are the key components when using 'Optimization in levels' to make a decision?
___________ statistics is the comparison of economic outcomes before and after some economic variable is changed.
___________ statistics is the comparison of economic outcomes before and after some economic variable is changed.
Match the following concepts with their descriptions:
Match the following concepts with their descriptions:
An individual is deciding whether to purchase an additional cup of coffee. According to the principle of optimization at the margin, they should:
An individual is deciding whether to purchase an additional cup of coffee. According to the principle of optimization at the margin, they should:
Optimization in differences requires calculating the total net benefit for each option, similar to optimization in levels.
Optimization in differences requires calculating the total net benefit for each option, similar to optimization in levels.
List three potential reasons why individuals may not always make the best choices, according to the economic perspective.
List three potential reasons why individuals may not always make the best choices, according to the economic perspective.
In a perfectly competitive market, sellers sell a(n) ____________ good or service.
In a perfectly competitive market, sellers sell a(n) ____________ good or service.
Which of the following best describes a 'market' in economics?
Which of the following best describes a 'market' in economics?
In a perfectly competitive market, individual buyers and sellers have the power to influence the market price.
In a perfectly competitive market, individual buyers and sellers have the power to influence the market price.
In economics, the phrase "holding all else equal" is used. What does this entail?
In economics, the phrase "holding all else equal" is used. What does this entail?
When graphing a demand schedule, the amount of a good or service that buyers are willing to purchase is known as the __________ ___________.
When graphing a demand schedule, the amount of a good or service that buyers are willing to purchase is known as the __________ ___________.
According to cost-benefit analysis, when benefits are the same across all alternatives, the decision-maker should:
According to cost-benefit analysis, when benefits are the same across all alternatives, the decision-maker should:
What does marginal cost refer to?
What does marginal cost refer to?
If a major oil exporter suddenly stopped production, what would be the immediate impact on the supply curve?
If a major oil exporter suddenly stopped production, what would be the immediate impact on the supply curve?
According to the principles of buyer's problem, what is the primary assumption economists make about consumer behavior?
According to the principles of buyer's problem, what is the primary assumption economists make about consumer behavior?
The budget constraint represents the goods or activities that a consumer can choose that exceed their entire budget.
The budget constraint represents the goods or activities that a consumer can choose that exceed their entire budget.
What principle should guide purchase decisions, according to the concept of optimizing at the margin?
What principle should guide purchase decisions, according to the concept of optimizing at the margin?
Consumer surplus is the difference between what you are willing to pay and what you have to pay, which is the ______.
Consumer surplus is the difference between what you are willing to pay and what you have to pay, which is the ______.
What does elasticity measure in economics?
What does elasticity measure in economics?
According to the law of demand, what generally happens when the price of a good increases?
According to the law of demand, what generally happens when the price of a good increases?
Match each elasticity value with its corresponding description:
Match each elasticity value with its corresponding description:
If demand for a product is inelastic, what happens to total revenue when the price increases?
If demand for a product is inelastic, what happens to total revenue when the price increases?
Which of the following factors is a determinant of the price elasticity of demand?
Which of the following factors is a determinant of the price elasticity of demand?
What question does cross-price elasticity of demand answer?
What question does cross-price elasticity of demand answer?
What does income elasticity of demand measure?
What does income elasticity of demand measure?
The assumption that prices are fixed and non-negotiable is always reflective of real-world market conditions.
The assumption that prices are fixed and non-negotiable is always reflective of real-world market conditions.
Mathematically, price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in its ______.
Mathematically, price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in its ______.
According to consumer incentives, what happens to the optimal number of jeans purchased if the price of jeans increases to $100, given previous prices and quantities?
According to consumer incentives, what happens to the optimal number of jeans purchased if the price of jeans increases to $100, given previous prices and quantities?
Flashcards
Economics
Economics
The study of how agents make choices among scarce resources and how those choices affect society.
Economic Agent
Economic Agent
Any individual or group that makes choices.
Scarcity
Scarcity
When the quantity people want exceeds what's available.
Positive Economics
Positive Economics
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Scarce Resources
Scarce Resources
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Costs of Social Media
Costs of Social Media
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Economics Study
Economics Study
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Objective Statements
Objective Statements
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Normative Economics
Normative Economics
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Microeconomics
Microeconomics
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Macroeconomics
Macroeconomics
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Optimization
Optimization
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Equilibrium
Equilibrium
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Empiricism
Empiricism
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Feasibility
Feasibility
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Trade-offs
Trade-offs
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Budget constraint
Budget constraint
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Free rider problem
Free rider problem
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Economic model
Economic model
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Mean/Average
Mean/Average
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Causation
Causation
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Correlation
Correlation
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Omitted variable
Omitted variable
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Causality
Causality
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Controlled Experiment
Controlled Experiment
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Natural Experiment
Natural Experiment
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Good Economic Question
Good Economic Question
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Optimization in Levels
Optimization in Levels
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Optimization in Differences
Optimization in Differences
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Comparative Statics
Comparative Statics
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Cost-Benefit Analysis
Cost-Benefit Analysis
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Marginal Analysis
Marginal Analysis
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Marginal Cost
Marginal Cost
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Optimization at the Margin
Optimization at the Margin
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Market
Market
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Quantity Demanded
Quantity Demanded
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Demand Curve
Demand Curve
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Law of Demand
Law of Demand
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Willingness to Pay
Willingness to Pay
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Diminishing Marginal Benefit
Diminishing Marginal Benefit
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Aggregation
Aggregation
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Demand Curve Shifters
Demand Curve Shifters
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Normal Good
Normal Good
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Inferior Good
Inferior Good
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Substitutes
Substitutes
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Complements
Complements
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Demand Schedule
Demand Schedule
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Quantity Supplied
Quantity Supplied
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Law of Supply
Law of Supply
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Willingness to Accept
Willingness to Accept
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Budget Set
Budget Set
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Optimizing Buyer
Optimizing Buyer
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Equal Marginal Benefit Rule
Equal Marginal Benefit Rule
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Consumer Surplus
Consumer Surplus
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Elasticity
Elasticity
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Price Elasticity of Demand
Price Elasticity of Demand
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Elastic Demand
Elastic Demand
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Inelastic Demand
Inelastic Demand
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Elastic Demand
Elastic Demand
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Inelastic Demand
Inelastic Demand
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Cross-Price Elasticity of Demand
Cross-Price Elasticity of Demand
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Income Elasticity of Demand
Income Elasticity of Demand
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Price Increase (Inelastic Demand)
Price Increase (Inelastic Demand)
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Unit Elastic
Unit Elastic
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Study Notes
- Economics studies agents' choices regarding scarce resources and how these choices impact society.
- Choice, not money, is the unifying feature of the subject.
Economic Agents and Scarcity
- An economic agent is any individual or group making choices (e.g., consumers, firms, politicians).
- Scarce resources are those desired but limited in availability. Scarcity arises from unlimited wants in a world of limited resources.
Positive vs. Normative Economics
- Positive economics describes what people actually do with objective, factual statements.
- Normative economics advises on choices, relying on subjective judgments and ethical considerations.
Microeconomics vs. Macroeconomics
- Microeconomics studies individuals, firms, and the government.
- Macroeconomics studies the whole economy.
Three Principles of Economics
- Optimization means making the best choice with available information.
- Equilibrium is when everyone is optimizing, and no one benefits from changing behavior.
- Empiricism involves using data to answer interesting questions.
Optimization: Feasibility, Trade-offs, and Budget Constraints
- Feasible options are available and affordable to an economic agent.
- Trade-offs occur when some benefits are given up to gain others.
- Budget constraints describe the set of choices available without exceeding the budget.
Equilibrium and the Free Rider Problem
- Equilibrium is a situation where no one benefits by altering their behavior.
- The free rider problem arises when individuals enjoy benefits without incurring costs.
Empiricism: Models and Data
- Empiricism involves developing models to explain the world and testing them with data.
- An economic model simplifies the description or representation of the world.
Causation vs. Correlation
- Causation is when one thing directly affects another.
- Correlation is a mutual relationship between two things, but doesn't necessarily imply causation.
Types of Correlation
- Positive correlation means variables change in the same direction.
- Negative correlation means variables change in opposite directions.
- Zero correlation means variables' movements are unrelated.
Reasons for Misinterpreting Correlation as Causality
- Omitted variables are factors contributing to cause and effect that are ignored.
- Reverse causality is when the cause and effect are opposite of what's assumed.
Determining Causality
- Controlled experiments involve randomly assigning subjects to treatment and control groups.
- Natural experiments occur when subjects end up in treatment or control groups due to events not determined by researchers.
Economic Questions
- Good economic questions should be relevant, important, and empirically answerable.
Optimization: Total vs. Marginal Analysis
- Optimization in levels looks at total benefit minus total cost (net benefit).
- Optimization in differences looks at the change in net benefit when switching options.
Comparative Statistics
- Comparative statics compare economic outcomes before and after a change in an economic variable.
Cost-Benefit Analysis
- Cost-benefit analysis involves finding the alternative with the highest net benefit (benefit minus cost).
Marginal Analysis
- Marginal analysis focuses on the difference between a feasible alternative and the next best one.
- Marginal cost is the additional cost of moving from one alternative to the next.
Principle of Optimization at the Margin
- If an option is the best choice, you're better off moving toward it and worse off moving away.
Markets
- A market is a group of economic agents trading a good or service, with rules and arrangements for trading.
- The Market price is the price at which buyers and sellers conduct transactions.
Competitive Markets
- In a perfectly competitive market, sellers offer identical goods, and individual buyers/sellers can't affect the market price.
- Buyers and sellers are price takers.
Buyers Behavior
- Quantity demanded is the amount buyers are willing to purchase.
- A demand schedule shows how one's purchases change as the price changes.
Demand Curves and the Law of Demand
- Demand curves plot the relationship between price and quantity demanded, which are negatively related.
- The law of demand states that quantity demanded increases as price falls.
Willingness to Pay and Diminishing Marginal Benefit
- Willingness to pay is the highest price a buyer will pay for an extra unit of a good.
- Diminishing marginal benefit means willingness to pay decreases with increased consumption.
Aggregation in Demand
- Aggregation is adding up individual behaviors to arrive at a whole.
Shifting Demand Curves
- Demand curves shift due to changes in tastes, income, prices of related goods, number/scale of buyers, or future beliefs.
- A left shift reduces quantity demanded; a right shift increases quantity demanded.
Normal vs. Inferior Goods
- For normal goods, increased income shifts the demand curve to the right.
- For inferior goods, increased income shifts the demand curve to the left.
Substitutes vs. Complements
- Substitutes are goods where a price fall in one shifts the demand curve for the other left.
- Complements are goods where a price fall in one shifts the demand curve for the other right.
Supply
- At a given price, the amount of a good sellers will supply is called the quantity supplied.
Law of Supply and Willingness to Accept
- The law of supply states that quantity supplied and price are positively related.
- Willingness to accept is the lowest price a seller will accept for an extra unit of a good.
Market Supply Curves
- The market supply curve sums individual supply curves and plots the relationship between total quantity and price.
Shifting Supply Curves
- Supply curves shift with changes in input prices, technology, number/scale of sellers, or future beliefs.
- A left shift decreases quantity supplied; a right shift increases quantity supplied.
Competitive Equilibrium
- Price is the only reason for movement along the supply curve
- Competitive markets converge to the price where quantity supplied equals quantity demanded.
- The competitive equilibrium is the crossing point of supply and demand curves.
Consumer Behavior
- Competitive equilibrium price equates quantity supplied and quantity demanded.
- The competitive equilibrium quantity corresponds to the equilibrium price.
Excess Supply and Demand
- Excess supply arises when the market price is above the competitive equilibrium.
- Excess demand arises when the market price is below the competitive equilibrium.
Buyer's Problem
- Economists assume that the consumer attempts to maximize the benefits from consumption.
- Prices are assumed to be fixed, without negotiation.
- It is assumed we can buy as much as we want of something without driving the price up.
Budget Constraint
- A budget set comprises all possible bundles a consumer can purchase with their income.
- A budget constraint represents the goods or activities that exhaust the budget.
Optimizing Purchases
- First make your purchase decisions based on marginal benefits per dollar spent.
- The marginal benefit from the last dollar spent on each good should be equal.
Marginal Benefit
- If marginal benefits are not equal, shift consumption to the good with higher marginal benefits per dollar.
- In equilibrium, the ratio of marginal benefits to price must be identical across goods.
Factors Affecting Equilibrium Purchases
- Two factors that change what we buy are changes in price and changes in income.
Consumer Surplus
- Consumer surplus is the difference between willingness to pay and the market price.
Elasticity
- Elasticity measures how sensitive one variable is to changes in another.
Price Elasticity of Demand
- This measures how quantity demanded changes with changes in a good's price.
- More precisely, an elasticity is the ratio of percentage changes in variables
Elasticity of Demand
- A demand elasticity > 1 = Elastic
- A demand elasticity < 1 = Inelastic
- A demand elasticity = 1 = Unit Elastic
- A demand elasticity = ∞ = Perfectly Elastic
- A demand elasticity = 0 = Perfectly Inelastic
Relationship Between Elasticity and Total Revenue
- Price elasticity varies along a linear demand curve.
- The lower on the demand curve, the more inelastic is demand. At the top the demand is elastic, at the bottom the demand is inelastic.
Determinants of Elasticity
- Determinants include the number and closeness of substitutes, budget share spent on the good and the time horizon available to adjust to price changes
Cross-Price Elasticity of Demand
- This measures how the quantity demanded of one good changes with the price of another.
Income Elasticity of Demand
- Measures how quantity demanded changes when income changes.
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Description
Explore the role of economic agents and the impact of scarcity. Understand positive and normative economics with examples. Learn about budget constraints and resource allocation decisions.
