Chap 1

Question 1

What is economics?

Answer 1

the discipline that studies how efficient decisions are made

Question 2

What does an efficient decision involve?

Answer 2

Choosing the most valuable alternative

Question 3

What is the theory of revealed preference?

Answer 3

the theory that our choices reveal our values

Question 4

What are the THREE characteristics of value?

Answer 4

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

Question 5

How do you measure value?

Answer 5

the maximum you are willing to pay (sacrifice)

Question 6

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

Answer 6

the minimum amount you are willing to accept for the item

Question 7

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

Answer 7

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

Question 8

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

Answer 8

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

Question 9

What does the optimal arrangement say about eating pizza?

Answer 9

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

Question 10

How do economists find the value of clean air?

Answer 10

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

Question 11

Nothing is beyond price except…

Answer 11

your own life.

Question 12

T/F We value dollars.

Answer 12

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

Question 13

What is cost?

Answer 13

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

Question 14

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

Answer 14

No, just the most valuable alternative

Question 15

Does cost involve spending money?

Answer 15

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

Question 16

What is the ‘no free lunch’ principle?

Answer 16

All decisions have a cost

Question 17

What is macroeconomics?

Answer 17

the study of the entire economics

Question 18

What is scarcity?

Answer 18

Having more wants than our resources can satisfy

Question 19

What is the Marginal Value of something?

Answer 19

the value of an individual unit

Question 20

What is marginal analysis?

Answer 20

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

Question 21

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

Answer 21

Consumer will consume until the MV is zero.

Question 22

Why does Marginal Cost rise as more is consumed?

Answer 22

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

Question 23

What is Marginal Cost?

Answer 23

the cost of the individual unit (MV)

Question 24

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

Answer 24

increases

Question 25

What is the Law of Diminishing Returns?

Answer 25

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.

Question 26

What is demand?

Answer 26

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

Question 27

Demand curve is equal to the

Answer 27

Marginal Value curve

Question 28

Can demand change?

Answer 28

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

Question 29

What is supply?

Answer 29

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

Question 30

Supply concept is equal to

Answer 30

the marginal cost concept

Question 31

Supply will shift if

Answer 31

technology changes or if price of resources change

Question 32

T/F Supply slopes downward

Answer 32

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

Question 33

T/F Demand slopes downward

Answer 33

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

Question 34

A shortage in the market can ONLY be caused by...

Answer 34

a price that is lower than the equilibrium price

Question 35

What is social gain equal to?

Answer 35

total value minus the total cost

Question 36

What is the equilibrium price?

Answer 36

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

Question 37

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

Answer 37

MV-MC

Question 38

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

Answer 38

the value of a unit is greater than the cost

Question 39

What is the consumer gain equal to?

Answer 39

total value minus total amount paid

Question 40

What is the producer gain equal to?

Answer 40

Total amount paid minus total cost

Question 41

What is the economic problem?

Answer 41

allocating scarce resources to their best uses

Question 42

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

Answer 42

prices rise and quantity falls

Question 43

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

Answer 43

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

Question 44

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

Answer 44

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)

Question 45

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

Answer 45

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

Question 46

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

Answer 46

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

Question 47

What is the Law of Unintended Consequences?

Answer 47

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

Question 48

What is consumer's gain?

Answer 48

Total value minus total amount paid

Question 49

What is the producer's gain?

Answer 49

Total amount paid minus total cost