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Macro Econ Chap 1 > Chap 1 > Flashcards

Chap 1 Flashcards

1
Q

What is economics?

A

the discipline that studies how efficient decisions are made

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2
Q

What does an efficient decision involve?

A

Choosing the most valuable alternative

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3
Q

What is the theory of revealed preference?

A

the theory that our choices reveal our values

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4
Q

What are the THREE characteristics of value?

A

depends on the situation; different for different people; subsequent units of the same good have less value

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5
Q

How do you measure value?

A

the maximum you are willing to pay (sacrifice)

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6
Q

How do you measure the value of something you already own?

A

the minimum amount you are willing to accept for the item

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7
Q

What is the optimal arrangement principle? What is it based on?

A

We first choose the best, then the second best and so on. Based on value.

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8
Q

If you can only drive 20 miles, what does the optimal arrangement principle say you will do?

A

Drive the most important 20 miles first, then the second most important. Eventually you will have no reason to drive.

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9
Q

What does the optimal arrangement say about eating pizza?

A

Appetites get satisfied the more you eat. Eventually you will be too full to eat.

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10
Q

How do economists find the value of clean air?

A

By looking at how similar houses in varying neighborhoods are selling in areas with clean or polluted air.

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11
Q

Nothing is beyond price except…

A

your own life.

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12
Q

T/F We value dollars.

A

False. We value the things that the dollars are exchanged for.

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13
Q

What is cost?

A

the value of the best alternative which is sacrificed when a decision is made.

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14
Q

Is cost the value of all the things you could possibly do?

A

No, just the most valuable alternative

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15
Q

Does cost involve spending money?

A

Yes and No. You don’t have to pay to skip class. You lose the possible knowledge learned.

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16
Q

What is the ‘no free lunch’ principle?

A

All decisions have a cost

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17
Q

What is macroeconomics?

A

the study of the entire economics

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18
Q

What is scarcity?

A

Having more wants than our resources can satisfy

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19
Q

What is the Marginal Value of something?

A

the value of an individual unit

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20
Q

What is marginal analysis?

A

Taking an action if and only if, the Marginal Value is at least as great as the Marginal Cost.

21
Q

If a good could be consumed at zero cost to the consumer…

A

Consumer will consume until the MV is zero.

22
Q

Why does Marginal Cost rise as more is consumed?

A

optimal arrangement principle. BECAUSE when the first item is purchased, the least valuable alternative goes first but eventually the sacrifices get more and more valuable

23
Q

What is Marginal Cost?

A

the cost of the individual unit (MV)

24
Q

The more money you spend on pizza, the value sacrificed…

A

increases

25
Q

What is the Law of Diminishing Returns?

A

As we add workers to the production facility, eventually they become less productive because there’s no way for everyone to take part in the production process.

26
Q

What is demand?

A

the relationship between the possible prices of something and the quantities people are willing to buy

27
Q

Demand curve is equal to the

A

Marginal Value curve

28
Q

Can demand change?

A

Yes, if the number of people in the market change, if the individuals in the marker have a higher or lower value

29
Q

What is supply?

A

the relationship between the possible prices of something and the quantities people/firms are willing and able to sell

30
Q

Supply concept is equal to

A

the marginal cost concept

31
Q

Supply will shift if

A

technology changes or if price of resources change

32
Q

T/F Supply slopes downward

A

False, supply slopes upwards because of law of diminishing returns AND the optimal arrangement principle applied to the entrepreneurs time and trouble.

33
Q

T/F Demand slopes downward

A

True, because the marginal value of a good falls as more is consumed

34
Q

A shortage in the market can ONLY be caused by…

A

a price that is lower than the equilibrium price

35
Q

What is social gain equal to?

A

total value minus the total cost

36
Q

What is the equilibrium price?

A

the price at which consumers can buy all they want and, at the same time, firms can sell all they want.

37
Q

Related to MV and MC, what does social gain equal?

A

MV-MC

38
Q

The social gain increases as more is produced as long as…what?

A

the value of a unit is greater than the cost

39
Q

What is the consumer gain equal to?

A

total value minus total amount paid

40
Q

What is the producer gain equal to?

A

Total amount paid minus total cost

41
Q

What is the economic problem?

A

allocating scarce resources to their best uses

42
Q

When supply falls, what affects do we see in the market?

A

prices rise and quantity falls

43
Q

Changes in supply, shifts in the supply curve in relation to producers…

A

producers wish to produce more or less, even if the price does not change. they are caused by changes in the producer’s costs.

44
Q

Changes in demand, shifts in the demand curve in relation to consumers…

A

consumers wish to buy less or more, even if the price does not change. caused by changes in consumers willingness and/or ability to purchase the product (nothing to do with price)

45
Q

When the state increases aid to uni students, what happens in the market?

A

demand increases, tuition rises, enrollment rises, taxes rise. Without gov aid the university would not be as expensive as students expect.

46
Q

If there is a hurricane more jobs are created to clean up and it is good for the economy. T/F

A

False, creates jobs, but lots of jobs were destroyed in the hurricane so we’re no better off

47
Q

What is the Law of Unintended Consequences?

A

The warning that intervening in a complex system may create unanticipated and undesirable outcomes

48
Q

What is consumer’s gain?

A

Total value minus total amount paid

49
Q

What is the producer’s gain?

A

Total amount paid minus total cost

Macro Econ Chap 1 (1 decks)

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