economics - social science studying behavior/interaction 

• microeconomics - behavior of individual economic units
  • how units interact to form larger units (consumers/owners >> markets/industries)
• about making tradeoffs, choices
• originally about how to allocate resources to increase nation’s wealth (optimization)
• tradeoffs made for best/optimum output (balance between everything)
  • use capital or labor? invest in machines or labor?
  • lower price >> sell more >> less profit per unit
  • higher price >> sell less >> more profit per unit
  • making the most out of given limits
• consumer theory - how consumers maximize preferences
  • limited income/time, how/when to consume
  • job security vs advancement
  • labor vs leisure
• producer theory - how firms maximize profits, how/when/what to produce
  • statistics/econometrics - tests accuracy of predictions/models

economic variables - stocks vs flows 

• flow variables - measured per unit of time (ie income)
  • production/consumption - units made/consumed annually
• stock variables - not measured w/ respect to time
  • price, wealth, inventories
• expenditure = total price = unit price x consumption
• revenue = unit price x production
• consumption = expenditure / price index
• price index = cost of materials
• nominal price - absolute/current dollar price of good/service when it is sold
• real price - price relative to others in relation to time, corrects for inflation
  • consumer price index ( CPI ) - measures aggregate prices altogether, computed from wide market
  • CPI percent changes = rate of inflation
  • real price = CPIbase year / CPI current year x nominal price

theories - used to explain observations w/ set of basic rules/assumptions 

• used to make predictions
• quality of predictions >> validity of theory
• tested by conducting experiments, comparing data
• imperfect, but gives insight into observations
• models - created from theories
  • mathematical representations used to make quantitative predictions
• positive analysis - statements describing cause/effect
  • deals w/ explanation/prediction
• normative analysis - questions what should happen
  • tries to find best potential scenario, deals more w/ comparison