Chapter 1

Question 1

Economics

Answer 1

The study of how society allocates its scarce resources to satisfy people’s unlimited wants.

Question 2

Resources

Answer 2

Anything used to make something else

Question 3

The four main categories of resources

Answer 3

Land, Labor, Entrepeneurship, & Capital

Question 4

Scarcity

Answer 4

Quantities of resources at any time are limited

Question 5

Economic rationality

Answer 5

People use the information they have to make the best decision for themselves

Question 6

Perfect information

Answer 6

Everyone knows everything needed to make a decision (no risks)

Question 7

Asymmetric information

Answer 7

Someone knows something someone else doesn’t

Question 8

“At the margin”

Answer 8

Means to think incrementally which means you’ll come to the best decision with the information you have

Question 9

Opportunity cost

Answer 9

The cost of everything given up to get something

Question 10

Best forgone alternative

Answer 10

The next best thing that was given up

Question 11

Total opportunity cost =

Answer 11

Opportunity cost of activity + best forgone alternative

Question 12

Explicit cost

Answer 12

Upfront cost paid

Question 13

Implicit cost

Answer 13

Lost cost from not participating in the next forgone alternative

Question 14

Market

Answer 14

Where buyers & sellers come together to make trades

Question 15

Free market

Answer 15

Absolutely no government is involved in the allocation of resources, private firms have full control of resource production

Question 16

Centrally planned economy (or command economy)

Answer 16

Government has full control of resource production & allocation

Question 17

Mixed economy

Answer 17

Private firms have control of resource production and allocation with government regulation involved

Question 18

Microeconomics

Answer 18

Decision-making at the individual level about production between households & firms

Question 19

Macroeconomics

Answer 19

Looks at the economy as a whole & the things that effect it (i.e. unemployment, inflation, etc.) but doesn’t look at specific industries

Question 20

Positive statements

Answer 20

Are based on fact and are statements that are based on real information from the past (doesn’t have to be true)

Question 21

Normative statements

Answer 21

Are based on opinion and use words like “could’ve”, “ “should’ve”, and “would’ve”

Question 22

Flow of income

Answer 22

Measure how money flows through the economy