Chap. 1 2 3

Question 1

A science that studies humans & societies use resources to produce goods & service to satisfy wants/needs

Answer 1

Economics

Question 2

Statement that can be verified with empirical data

Answer 2

Positive Statement

Question 3

Statement based on person’s
belief or value

cannot be verified

Answer 3

Normative Statement

Question 4

Scientific method to construct
Economic Theory

Answer 4

1. Hypothesis
2. Define Terms / State Assumptions
3. Test w/ data
4. Accept / Reject / Modify theory

Question 5

Economics studies how major components of an economy interact

Answer 5

Macroeconomics

e.g. Unemployment / Inflation / Gov policies / Int rates

Question 6

Economics studies outcomes of decisions by people/firms

Answer 6

Microeconomics

E.g. Supply & demand / Cost & price of good / Market structure / Monopolies

Question 7

4 Economic Resources

Answer 7

1. Labour
   Human mental & physical effort
2. Land
   Natural resource to produce goods & services
3. Capital
   Plant/Equipment/Building/Tools for production
4. Enterprise
   Human to innovate and take risks

Question 8

Payments for Economic Resources

Answer 8

1. Labour → Wages
2. Land → Rent
3. Capital → Interest
4. Enterprise → Profit

Question 9

The value of the
Next-Best Alternative
given up for
the other choice

Answer 9

Opportunity Cost

Question 10

Products used by consumers to satisfy wants & needs
Only consumers buy

Answer 10

Consumer
Goods & Services

E.g. Pizza

Question 11

PPE used to make goods for sale
Only firms & gov buy

Answer 11

Capital Goods

E.g. Machinery

Question 12

2 Efficiencies

Answer 12

1. Productive Efficiency
   Production of an output at Lowest Possible Avg Cost
2. Allocative Efficiency
   Production of combination of outputs that Best Satisfies Society & Consumers’ Demands

Question 13

5 Methods of
Allocative Efficiency

Answer 13

1. First come, first served
2. Lottery
3. Sellers’ preference
4. Gov decree
5. Market

Question 14

Difference of
If-No-Trade and If-Traded

Answer 14

Benefit of Trade

Question 15

3 Fundamental Questions for all economic societies

Answer 15

1. What to produce
2. How to produce (tech)
3. For Whom to receive (distribution)

Question 16

4 Types of Economies

Answer 16

1. Co-operative
   Foraging, egalitarian, no hierarchy/leader/army
   (Kibbutz)
2. Command
   Totalitarian (elite group)
3. Customary
   Traditional/Religious
   Landowners (royalty/aristocracy/church)
4. Competitive
   Market

Question 17

A graphical representation of combinations of
maximum output
that can be produced from available resources/tech

Answer 17

Production Possibilities Model

Assumptions:
1. Full employment
2. Best tech
3. Productive efficiency

Question 18

Law of Increasing Costs

Answer 18

Economy’s
total production level of
particular item ↑
→ Per Unit Cost of
additional unit ↑

Question 19

Heart of Economics
(3 factors)

Answer 19

Scarcity
Choice
Opportunity Cost

(COS)

Question 20

Production Possibilities Model illustrates

Answer 20

Choice
Efficiency
Opportunity Cost
Unemployment

(CEOU)

Question 21

Mechanism that allows buyers/sellers to exchange products/services

Answer 21

Market

Question 22

Relationship between various
prices & quantities that
consumers/suppliers are willing/able to buy/produce

Answer 22

Demand/Supply

Question 23

Motivation of consumers and producers in The Wealth of Nations - Adam Smith

Answer 23

Self-interest

Question 24

Most important determinant of Demand

Answer 24

Price

Question 25

Motivation of Supply

Answer 25

Profit

Question 26

Demand/Supply Schedule contains

Answer 26

- **Price** per Case - **Quantity** Demanded/Supplied

Question 27

Reasons of **Downward** Slopes of Demand Curve

Answer 27

1. **Income effect** Effect of a ***Price Change*** on ***Real Income***, and on ***Quantity Demanded*** 商品價格對消費者真實可支配收入及需求量的影響 2. **Subsitution effect** Effect of ***Change in Relative Prices*** of a Product and its Substitute 商品價格變化對其替代品需求量的影響

Question 28

Cause of **Movement** along Demand/Supply Curve

Answer 28

Price Change

Question 29

When 1. Prices **ABOVE** Equilibrium 2. Prices **BELOW** Equilibrium

Answer 29

1. Surplus 2. Shortage

Question 30

**Determinants of Demand**: Cause change in Demand (Quantity Demanded at each price changes)

Answer 30

Factors ***Other than Price*** 1. Consumer **Preferences** 2. Consumer **Incomes** 3. Prices of **Related Products** *substitute/complimentary* 4. **Expectations** of Future (in Prices/Income/Availablity) Expected future $ **↑** → Sold **↑** now 5. **Population** Size / Income & Age Distribution *Assumed to be constant when drawn*

Question 31

When income rises, consumers buy more __ products & buy less __ products

Answer 31

**Normal** Products ; **Inferior** Products

Question 32

2 Types of **Related Products**

Answer 32

1. **Substitutes** Products can be substituted for each other. Product price **↑** → Substitute demand **↑** 2. **Complements** Tend to be bought together. Product price **↑** → Substitute demand **↓**

Question 33

**Equilibrium** price & quantity are determined by

Answer 33

Interaction between buyers & sellers

Question 34

2 Equilibrium Outputs

Answer 34

Quantity Supplied & Quantity Demanded

Question 35

**Determinants of Supply**: Cause change in Supply (Quantity Supplied at each price changes)

Answer 35

1. **Prices** of **Resources** Resource $ **↑** → Supply **↓** 2. Gov **Taxes & Subsidies** Tax **↑** → Supply **↓** Subsidy **↑** → Supply **↑** 3. **Technology** Tech **↑** → Production Cost **↓** & Supply **↑** 4. Prices of **Substitutes in Production** Product $ **↑** → Supply of Sub in Production **↓** 5. Future **Expectation** of Suppliers Expected future $ **↓** → Supply **↑** 6. **Number** of Suppliers Suppliers # **↓** → Supply **↓**

Question 36

When Demand/Supply change together, the effect of Price/Quantity is

Answer 36

Indeterminate or Inconclusive

Question 37

When Demand ↑ & Supply ↑ Price __ Qty __

Answer 37

Price **?** Qty**↑**

Question 38

When Demand ↓ & Supply ↓ Price __ Qty __

Answer 38

Price **?** Qty**↓**

Question 39

When Demand ↑ & Supply ↓ Price __ Qty __

Answer 39

Price**↑** Qty **?**

Question 40

When Demand ↓ & Supply ↑ Price __ Qty __

Answer 40

Price**↓** Qty **?**

Question 41

3 Problems with Markets

Answer 41

1. Markets adjust NOT quickly 2. Markets results NOT equitable 3. Competitve Markets NOT for some goods/srv.

Question 42

Price Control

Answer 42

Gov regulates $ incl. 1. **Price Ceiling** 2. **Price Floor** 3. **Quota** 4. **Taxes** *incl. Carbon tax* 5. **Subsidies** ***per unit produced*** *promote economic/social policy*

Question 43

Price Ceiling 1. __ equil. $ 2. cause

Answer 43

1. **<** equil. $ 2. **Shortage** & black market E.g. Rent

Question 44

Price Floor 1. __ equil. $ 2. cause

Answer 44

1. **>** equil. $ 2. **Surplus** & gov buys it E.g. min. wage/agricultural

Question 45

How to Allocate Scarcity/Shortage

Answer 45

1. Market 2. Lottery 3. First come, first serve 4. Preference of producers 5. Rationing by gov

Question 46

Surpluses will be

Answer 46

1. **Stored** 2. **Converted** 3. Sold abroad (**Dumped** at low $) 4. **Donated** 5. **Destroyed** *SCDDD*

Question 47

Quota 1. __ equil. $ 2. cause

Answer 47

Restricting production output 1. **>** equil. $ 2. Price **↑** without Surplus

Question 48

How 1. Taxes 2. Subsidies impact supplies

Answer 48

Supplies are 1. **↓** by Taxes ⇒ Supp Crv **↑** 2. **↑** by Subsidies ⇒ Supp Crv **↓**