Chapter 1-3

Question 1

Opportunity cost

Answer 1

The opportunity cost of an item is what you give up to get that item.

Question 2

Marginal Cost

Answer 2

all of the costs that vary with that level of production

Question 3

Marginal Benifit

Answer 3

The marginal benefit is what most you’re willing to pay for the item. It depends on how many units a person
already has.

Question 4

Marginal change

Answer 4

Describes
a small incremental adjustment to an existing plan of action

Question 5

What is the relationship between unemployment and inflation?

Answer 5

In the short run when inflation rises, unemployment drops. Higher unemployment, on the other hand, equates to lower inflation. When more people are working, they have the power to spend, which leads to an increase in demand.

Question 6

Incentive

Answer 6

Something that induces a person to act, such as the prospect of a punishment or a reward.

Question 7

Why should policymakers think about incentives?

Answer 7

Many policies change the costs or benefits that people face and, therefore, alter their behavior.

Question 8

How do both people benifit from trade?

Answer 8

Trade us volunteery so both people wouldn’t trade unless they thought they were benifiting from it.

Question 9

What does trade allow countries to do?

Answer 9

Trade allows countries to specialize in what they do best and to enjoy a greater variety of goods and services.

Question 10

What is the invisible hand?

Answer 10

Leads households and firms interacting in markets. The invisible hand uses prices for self-interact.

Question 11

Inflation

Answer 11

An increase in the overall level of prices in the economy. Causes growth in quantity of money. Prices go up by a lot.

Question 12

Productivity

Answer 12

The amount of goods and services produced from each unit of labour input. Nation with higher productivity = higher living standard.

Question 13

Externality

Answer 13

Impact of one persons actions on the well-being of a bystander.

Question 14

Market power

Answer 14

The ability of a single person to unduly influence market prices.

Question 15

Trade off

Answer 15

To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another.

Question 16

equality vs. efficency

Answer 16

An efficient market is one that optimizes the production and allocation of resources given existing factors of production. An equitable market means the distribution of goods and services throughout society and the profits received by firms are fair.

Question 17

Constant opportunity cost

Answer 17

the resources are easily adaptable from the production of one good to the production of another good.

Question 18

Increasing opportunity cost

Answer 18

an economic principle that describes how opportunity costs increase as resources are applied. (In other words, each time resources are allocated, there is a cost of using them for one purpose over another.) ex. guns and butter

Question 19

Factors of production

Answer 19

Land, labour, capital, entreprenour

Question 20

Product market

Answer 20

where goods and services are sold and bought

Question 21

factor market

Answer 21

where different factors of production like land, capital, and labor are bought and sold.

Question 22

How are economists scientists?

Answer 22

They devise theories, collect data and then analyse these data in an attempt to verify or refute their theories. Economists make due with the data they have because it is nearly impossible for them to conduct labs on nations.

Question 23

Why do economists make assuptions?

Answer 23

Economists make assumptions for the same reason: Assumptions can simplify the complex world and make it easier to understand. To study the effects of international trade, for example, we might assume that the world consists of only
two countries and that each country produces only two goods. In reality, there are numerous countries, each of which produces thousands of different

Question 24

Should an economic model describe reality
exactly?

Answer 24

No becasue the model doesn’t include every feature of the economy. Models are built with assuptions becasuse economists assume away many of the detail of the economy that are irrelevant.

Question 25

Name one economic interaction that isn’t covered by the simplified circular-flow diagram.

Answer 25

The roles of government and international trade.

Question 26

Use a production possibilities frontier to
describe the idea of “efficiency.”

Answer 26

The production possibilities frontier simplifies a complex economy to highlight some powerful ideas like efficiency. It does this by, showing how there are a scarce amount of resources, so the economy must be efficient with how it allocates these resources so it is utilizing all of them.

Question 27

What are the two subfields into which economics
is divided?

Answer 27

Macroeconomics and Microeconomics.

Question 28

Macroeconomics

Answer 28

The study of economywide phenomena. Ex. effects of borrowing by the federal government

Question 29

Microeconmics

Answer 29

The study of how households and firms make decisions and how they interact in specific markets. Ex. effects of rent control on houseing in NYC. Single industries, single bussincess and household decisions.

Question 30

Positive statement

Answer 30

Descriptive. Make a claim about how the world is. You can test this because it is a fact.

Question 31

Normative statements

Answer 31

Prescriptive. Make a claim about how the world “ought to be.” values and facts, can’t test it because it’s opinion based.

Question 32

Why do economists sometimes offer conflicting advice to policymakers?

Answer 32

Differing normative values and political/ideological biases. Also positive theories can be very difficult to test on economy-wide phenomena because of the lag of time and unclear causation. As it is hard to perform experiments to isolate economic variables and causes.

Question 33

When is a graph bowed out?

Answer 33

When opportunity cost is increasing

Question 34

When is graph straight?

Answer 34

When opportunity cost is constant.

Question 35

Absolute advantage

Answer 35

When comparing the productivity of one person, firm, or nation to that of another. The producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good.

Question 36

Compartive advantage

Answer 36

When describing the opportunity cost of two producers. The producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X and is
said to have a comparative advantage in producing it.

Question 37

Is absolute advantage or comparative advantage
more important for trade?

Answer 37

The gains from specialization and trade are based on comparative advantage. When each person specializes in producing the good for which he or she has a comparative advantage, total production in the economy rises. This increase in the size of the economic pie can be used to make everyone better off.

Question 38

If two parties trade based on comparative
advantage and both gain, in what range must
the price of the trade lie?

Answer 38

General rule: For both parties to gain from
trade, the price at which they trade must lie between the two opportunity costs.

Question 39

Will a nation tend to export or import goods for which it has a comparative advantage?

Answer 39

If one country has a comparitive advantage they should specialize in the good, then export it as their opportunity cost is less

Question 40

Why do economists oppose policies that restrict trade among nations?

Answer 40

restrictions to trade hurt all countries. Free trade= voluntary trade, so each person would benifit fro the trade. It also allows people to specialize in what they so which can benifit consumers. This can also lead to market failure.

Question 41

Imports

Answer 41

Goods produced abroad
and sold domestically

Question 42

Exports

Answer 42

Goods produced domestically and sold
abroad

Question 43

What is market failure?

Answer 43

An inefficient allocation of resources in the free market that occurs when individuals acting in rational self-interest generate less-than-optimal economic outcomes.

Question 44

Can two countries achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods?

Answer 44

Yes even if 1 country has an absolute advantage, they both must have a comparative advantage in one good or service that they’re trading.

Question 45

Can certain very talented people have a comparative
advantage in everything they do?

Answer 45

No, no one can havce a comparitive advantage in everything they do. Becasue this reflect an opportunity cost, so if the cost is low in one factor it must be high in another causing a disadvantage.

Question 46

Is this true, “If a certain trade is good for one person, it
can’t be good for the other one?”

Answer 46

False, a trade must be mutually benificial to occur.

Question 47

If a certain trade is good for one person, is it
always good for the other one?

Answer 47

No becasue if the price doesn’t lie between both the opportunity costs then it’s not mutually benificial.

Question 48

If trade is good for a country, is it good for everyone in the country?

Answer 48

No, trade that makes the country better off can harm certain individuals.

Question 49

Inputs

Answer 49

Hours, number of workers, number of fuel. Other. Goes. Under.

Question 50

Outputs

Answer 50

Things being produced. Other. Goes. Over.

Question 51

Capital

Answer 51

Tangible assets that are used in the production of goods or services. This includes machinery, equipment, buildings, and infrastructure that businesses use to generate income.

Question 52

What are the 3 economic questions?

Answer 52

What to Produce?

This question addresses the issue of resource allocation and production choices. It involves choices about the mix of products and services that will best satisfy the wants and needs of society.

How to Produce?

Economies need to determine the most efficient way to produce goods and services to make the best use of available resources.

For Whom to Produce?

This question revolves around the distribution of goods and services among the members of society. It concerns who gets access to the products and services that are produced and how those resources are distributed.

Question 53

Cashflow Quadrant

Answer 53

E Quadrant (Employee): People in this quadrant earn income primarily through employment.

S Quadrant (Self-Employed or Small Business Owner): Individuals in this quadrant work for themselves. They may own small businesses, be freelancers, or provide professional services.

B Quadrant (Business Owner or Investor): People in this quadrant generate income through owning and operating businesses or through investments.

I Quadrant (Investor): Investors in this quadrant derive income primarily from their investments. They may have a portfolio of stocks, bonds, real estate, or other assets that generate returns in the form of dividends, interest, rent, or capital gains.

Question 54

The Phillips Curve

Answer 54

A concept in economics that describes the inverse relationship between inflation and unemployment. It suggests that there is a trade-off between these two macroeconomic variables in the short run.

Question 55

TNSTAAFL

Answer 55

“Theres no such thing as a free lunch” is a phrase that describes the cost of decision-making and consumption. It suggests that things that appear to be free will always have some hidden or implicit cost to someone, even if it is not the individual receiving the benefit.

Question 56

Market economy VS. Centerally Planned Economy

Answer 56

A centrally planned economy is the one in which economic activities (production, consumption and exchange) are governed by the government. Market economy is the one in which economic activities (production, consumption and exchange) are governed by the market forces of supply and demand.

Question 57

How to find how long something takes until it doubles?

Answer 57

The rule of 72 : divide % into 72