Chapter 1

Question 1

Microeconomics

Answer 1

Individual

The part of economics concerned with:

-decision making by individual units such as household, a firm, or an industry

individual markets, specific goods and services, and product and resource prices

Question 2

Macroeconomics

Answer 2

Economy as whole

The part of economics concerned with:

-performance and behavior of economy as a whole

-Focuses on

-economic growth
-business cycle
-interest rates
-inflation
-behavior of major economic aggregates such as household, business and government sectors

Question 3

Aggregate

Answer 3

a collection of specific economic unites treated as if they were one unit

Question 4

Positive economics

Answer 4

focuses on facts and cause and effect relationship. FACTUAL NO FEELINGS

Question 5

Normative economics

Answer 5

Incorporates value judgements what the economy should be like or what policy actions should be recommended.

“ought or “should” statements

Question 6

economizing problem

Answer 6

The choices necessitated because society’s economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce)

Question 7

scarcity

Answer 7

The limits placed on the amounts and types of goods and services available for consumption as the result of there being only limited economic resources from which to produce output

Question 8

utility

Answer 8

the satisfaction or pleasure a consumer obtains from the consumption of a good or service

Question 9

marginal analysis

Answer 9

the comparison of marginal (extra) benefits and marginal costs, usually for decision making

Question 10

economic principle

Answer 10

a statement about economic behavior or the economy that enables prediction of the probable effects of certain actions.

-generalizations
-ceteris paribus: other things equal assumptions (the assumptions that factors other than those being considered do not change)

Question 11

We can clarify the economizing problem by visualizing _____

Answer 11

budget line: curve that shows various combination of two product a consumer can purchase with a specific income

income/price of item = quantity

Question 12

What items are attainable on the budget line

Answer 12

all combinations of movies and book on or inside the budget line

Question 13

Opportunity cost

Answer 13

Example: to obtain the first movie, you trade off 2 books. So the opportunity cost of the first movie is 2 books.

Question 14

Income and how if affects the budget line

Answer 14

An increase in income shift the budget line to the right; a decrease in money income short it to the left.

Question 15

Economic resource

Answer 15

the land, labor, capital, and entrepreneurial ability that are used to produce goods and services.

Question 16

Economic resource: land

Answer 16

includes all natural resources used in the production process: forests mineral and oil deposits, water resources, wine powe , sunlight, and arable land

Question 17

Economic resource: labor

Answer 17

resource consist of physical actions and mental activities that people contribute to the production of goods and services

Question 18

economic resource: capital goods

Answer 18

Man-made physical objects (factories, roads) and intangible ideas (the recipe for cement) that do not directly satisfy human wants but which help to produce goods and services that do satisfy human wants

Question 19

consumer good

Answer 19

Products and services that satisfy human wants directly.

Question 20

economic resource: entrepreneurial ability

Answer 20

The human resource that combines the other economic resources of land, labor, and capital to produce new products or make innovations in the production of existing products; provided by entrepreneurs

Question 21

Entrepreneurs

Answer 21

provides entrepreneurial ability to firms by

-setting strategy
-advancing innovations
-bearing financial risk

Question 22

Because land, labor, capital, and entrepreneurial ability are combined to produce goods and services they are called _______

Answer 22

factors of production (inputs)

Question 23

Production Possibility Curve

Answer 23

Pizza and Robots: A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed

attainable: points on or in curve (if in curve it represents unemployment or failure to achieve full employment)
unattainable: points outside of curve

-a comparison of mb and mc costs is needed to determine the best or optimal output mix on a production possibilities curve

Question 24

Why does the production possibility curve bow out from the origin?

Answer 24

it reflects the law of increasing opportunity costs: results from that fact that economic resources are not completely adaptable to alternative uses.

Question 25

How do you get the marginal opportunity cost on production possibility curve?

Answer 25

subtract last unit

Question 26

How do you get the total opportunity cost on the production possibility curve?

Answer 26

look at where the two item meet on the line

Question 27

Marginal benefit vs marginal cost

Answer 27

-Any economic activity should be expanded as long as marginal benefits exceeds marginal costs

-the optimal amount of activity occurs where MB=MC

Question 27

Marginal benefit vs marginal cost

Answer 27

-Any economic activity should be expanded as long as marginal benefits exceeds marginal costs

-the optimal amount of activity occurs where MB=MC

Question 28

Rational self interest

Answer 28

People allocate their time, energy, and money to maximize their satisfaction. Because they weigh costs and benefits, their economic decisions are purposeful, rational, and not random or chaotic

Question 28

Rational self interest

Answer 28

People allocate their time, energy, and money to maximize their satisfaction. Because they weigh costs and benefits, their economic decisions are purposeful, rational, and not random or chaotic

Question 29

Increase in resource supplies shifts the production possibility curve where?

Answer 29

outward and to the right
(economic growth): An outward shift in the production possibilities curve that results from an
1. increase in resource supplies
2. or quality
3. or an improvement in technology

Question 30

Internalization specialization and trade enables what

Answer 30

obtain more goods than its production possibilities curve indicates

Question 31

economic perspective

Answer 31

includes three elements

-scarcity and chose
-purposeful behavior
-marginal analysis

Question 32

What does every point on the budget line represent

Answer 32

all combinations of goods that can be purchased with a given income