Ch. 1 Foundations and Models

Question 1

Economics

Answer 1

study of choices people make to attain their goals given scarce resources

Question 2

Scarcity

Answer 2

unlimited wants exceed the limited resources

Question 3

Economic Model

Answer 3

simplified version of reality used to analyze real-world situations

Question 4

Market

Answer 4

group of buyers and sellers and the arrangement they come together to trade

Question 5

3 Key Economic Ideas

Answer 5

1. People are rational 2. People response to economic incentives 3. Optimal decisions are made at the margin

Question 6

Trade-off

Answer 6

bc of scarcity, making more of one thing means producing less of another

Question 7

Opportunity Cost

Answer 7

the highest valued alternative that must be given up in order to engage in an activity: force society to answer 3 fundamental questions

Question 8

3 Fundamental Questions

Answer 8

1. What will be produced 2. How will they be produced 3. Who will receive what is produced

Question 9

Centrally Planned Economy

Answer 9

the government decides how economic resources will be allocated

Question 10

Market Economy

Answer 10

decisions of households and firms allocate economic resources

Question 11

Mixed Economy

Answer 11

most economic decisions from buyer/seller interaction but the government plays a significant role in allocation of resources

Question 12

Productive Efficieny

Answer 12

when a good/service is produced at the lowest possible cost

Question 13

Allocative Efficiency

Answer 13

when production is in accordance to consumer preferences (marginal benefit always equal or more than marginal cost)

Question 14

Voluntary Exchange

Answer 14

situation when buyer and seller both made better off by a transaction

Question 15

Equity

Answer 15

fair distribution of economic benefits

Question 16

Economic Model 5 Steps

Answer 16

1. Assumptions 2. Hypothesis 3. Test 4. Revise 5. Retain

Question 17

Positive Analysis

Answer 17

analysis of “what is”

Question 18

Normative Analysis

Answer 18

analysis of “what ought to be”

Question 19

Microeconomics

Answer 19

study of decisions of households and firms, how they interact and the influence of the government on their choices

Question 20

Macroeconomics

Answer 20

study of economy as a whole (inflation, unemployment, economic growth)

Question 21

Firm/Company/Business

Answer 21

an organization that produces a good or service

Question 22

Entrepreneur

Answer 22

someone who operates a business

Question 23

Innovation

Answer 23

practical application of of an invention

Question 24

Technology

Answer 24

processes used to produce goods and services

Question 25

Goods

Answer 25

tangible merchandise

Question 26

Services

Answer 26

activities done for others

Question 27

Revenue

Answer 27

total amount received for a good/service; price per unit x units sold

Question 28

Profit

Answer 28

difference between cost and revenue, including opportunity cost

Question 29

Household

Answer 29

all persons occupying a home

Question 30

Factors of Production/Economics Resources/Inputs

Answer 30

used by firms for make goods/services (labor, capital, natural resources)

Question 31

Capital

Answer 31

(physical) manufactured goods and services used to produce other goods and services

Question 32

Human Capital

Answer 32

accumulated training and skills workers possess