Chapter 1

Question 1

Economics

Answer 1

the discipline that studies How efficient decisions are made.

Question 2

Efficient Decisions

Answer 2

Involve choosing the most valuable alternative.

Question 3

Theory of Revealed Preference

Answer 3

Our choices reveal our values.

Question 4

Characteristics of Value

Answer 4

• Value depends on the situation
• Value is different for different people
• Subsequent units of the same good have less value

Question 5

Optimal Arrangement Principle

Answer 5

The idea that we first choose the best, then the second best, and so on.

Question 6

Value of something to an individual…

Answer 6

…is the most that individual is willing to sacrifice to obtain that something.

Question 7

Cost

Answer 7

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

Question 8

No Free Lunch Principle

Answer 8

Since any decision has at least two alternatives, any decision involves costs.

Question 9

Macroeconomics

Answer 9

The study of entire economies, using concepts like total output, the unemployment rate, the national debt, total investment.

Question 10

Marginal Value

Answer 10

Marginal value of something is the value of the individual units of that something.

Question 11

Marginal Analysis

Answer 11

Each unit for which the marginal value is at least as great as marginal cost.

Question 12

Law of Diminishing Returns

Answer 12

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

Question 13

Demand

Answer 13

The relationship between the possible prices of something and the quantities people are willing to buy, other things equal.

Question 14

Supply

Answer 14

The relationship between the possible prices of something and the quantities people/firms are willing and able to sell, other things equal.

Question 15

Equilibrium Price

Answer 15

Consumers can buy all they want and, at the same time, firms can sell all they want.

Question 16

Social Gain

Answer 16

Social Gain = Total Value - Total Cost

Question 17

Consumer’s Gain

Answer 17

Consumer’s Gain = Total Value - Total Amount Paid

Question 18

Producer’s Gain

Answer 18

Producer’s Gain = Total Amount Paid - Total Cost

Question 19

The Economic Problem

Answer 19

Allocating scarce resources to their best uses.

Question 20

Changes in Supply

Answer 20

Are shifts in the supply curve. That is, 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 21

Changes in Demand

Answer 21

Are shifts in the demand curve. That is, consumers wish to buy more or less, even if the price does not change. They are caused by changes in things that influences the consumer’s willingness to purchase the product which have nothing to do the product price.