ECON 2305 PRINCIPLES OF MACROECONOMICS & KEY TOPICS EXAM PREPARATION
(BEST FOR SEPTEMBER 18TH 2025 EXAM PREP) University of Texas at Arlington
Chapter 1: The Nature of Economics
Everything highlighted in blue - for exam!! (8 questions & appendix)
I: The Power of Economic Analysis:
Defining Economic Terms:
• Economics - The study of how limited (or scarce) resourced are used to produce goods & services to satisfy our unlimited wants;
study of how people make choices
• Resources - inputs used to produce goods & services (all resources are limited/scarce)
○ Oil: a resource, can think that it can be limited & scarce, every resource you can use to produce is scarce/limited = what
choice do you want to make when using different resources
• Wants - what people would buy if their incomes were limited
Microeconomics vs. Macroeconomics:
• Microeconomics - study of decision making by individuals, groups, & firms
• Macroeconomics - study of the economy as a whole; it is focused on aggregate measurements of the economy such as
unemployment, price level, & national income
• Aggregate - total amount or quantity
II: The Three Basic Economic Questions & Two Opposing Sets of Answers:
The Three Basic Questions:
• Economic System - mechanism for determining how scarce resources are used to satisfy wants or desires
• Because all resources are scarce (limited), every economy must answer 3 questions (choices):
○ What and how much will be produced?
○ How will items be produced?
○ For Whom will items be produced?
Two Opposing Sets of Answers:
• Each country determines how it will answer the 3 basic economic questions:
○ Centralized Command & Control (central planning)
▪ A central authority makes the decisions (government, dictator, king/queen, Monarchy, etc.
○ The Price System (market system or free market)
▪ Individuals & private companies make the decisions; decentralized decision making
○ Mixed Economic Systems
▪ Some decisions are made by the price system (or market mechanism) & some by a central authority
, III: The Economic Approach: Systematic Decisions:
• Rationality Assumption - people make decisions to maximize their own self interest
○ Self-interest could be wealth, helping others, animal rights, contributing to the arts, etc.
IV: Economics as a Science:
Models & Assumptions:
• Models or theories - used to explain & predict situations that occur in the real world
• Economic models are usually simplified representations that include assumptions
• An assumption used to frequently is: Ceteris paribus - everything else held constant or other things held equal
• Economics is an empirical science because models can be tested using real world data
Behavioral Economics & Bounded rationality:
• Behavioral economics - consumer behavior can be affected by psychological factors that interfere with rational decision making
• Bounded rationality - people are not completely rational because they cannot consider every possible choice
• Unlike rationality assumption, some decisions do not maximize their own self interest
(BEST FOR SEPTEMBER 18TH 2025 EXAM PREP) University of Texas at Arlington
Chapter 1: The Nature of Economics
Everything highlighted in blue - for exam!! (8 questions & appendix)
I: The Power of Economic Analysis:
Defining Economic Terms:
• Economics - The study of how limited (or scarce) resourced are used to produce goods & services to satisfy our unlimited wants;
study of how people make choices
• Resources - inputs used to produce goods & services (all resources are limited/scarce)
○ Oil: a resource, can think that it can be limited & scarce, every resource you can use to produce is scarce/limited = what
choice do you want to make when using different resources
• Wants - what people would buy if their incomes were limited
Microeconomics vs. Macroeconomics:
• Microeconomics - study of decision making by individuals, groups, & firms
• Macroeconomics - study of the economy as a whole; it is focused on aggregate measurements of the economy such as
unemployment, price level, & national income
• Aggregate - total amount or quantity
II: The Three Basic Economic Questions & Two Opposing Sets of Answers:
The Three Basic Questions:
• Economic System - mechanism for determining how scarce resources are used to satisfy wants or desires
• Because all resources are scarce (limited), every economy must answer 3 questions (choices):
○ What and how much will be produced?
○ How will items be produced?
○ For Whom will items be produced?
Two Opposing Sets of Answers:
• Each country determines how it will answer the 3 basic economic questions:
○ Centralized Command & Control (central planning)
▪ A central authority makes the decisions (government, dictator, king/queen, Monarchy, etc.
○ The Price System (market system or free market)
▪ Individuals & private companies make the decisions; decentralized decision making
○ Mixed Economic Systems
▪ Some decisions are made by the price system (or market mechanism) & some by a central authority
, III: The Economic Approach: Systematic Decisions:
• Rationality Assumption - people make decisions to maximize their own self interest
○ Self-interest could be wealth, helping others, animal rights, contributing to the arts, etc.
IV: Economics as a Science:
Models & Assumptions:
• Models or theories - used to explain & predict situations that occur in the real world
• Economic models are usually simplified representations that include assumptions
• An assumption used to frequently is: Ceteris paribus - everything else held constant or other things held equal
• Economics is an empirical science because models can be tested using real world data
Behavioral Economics & Bounded rationality:
• Behavioral economics - consumer behavior can be affected by psychological factors that interfere with rational decision making
• Bounded rationality - people are not completely rational because they cannot consider every possible choice
• Unlike rationality assumption, some decisions do not maximize their own self interest
