Chapter 1

Question 1

Economics is

Answer 1

the study of how efficient decisions are made

Question 2

Efficient decisions involve

Answer 2

choosing the most valuable alternative

Question 3

The characteristics of value are?

Answer 3

1. value depends on the situation
2. different people have different values
3. subsequent units of the same good have less value

Question 4

Why do subsequent units have less value?

Answer 4

Optimal arrangement principle; appetites get more satisfied as more is consumed

Question 5

How do you measure the value of life to an individual?

Answer 5

find out how much money a worker will accept to do a more dangerous job

Question 6

No free lunch means

Answer 6

any decision has at least 2 alternatives, so any decision involves cost

Question 7

Optimal arrangement principle

Answer 7

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

Question 8

Theory of revealed preference

Answer 8

our choices reveal our values

Question 9

Value of something to an individual is

Answer 9

the most that an individual is willing to sacrifice to obtain that something

Question 10

cost

Answer 10

the value of the BEST alternative which is sacrificed when a decision is made

Question 11

Macroeconomics

Answer 11

the study of entire economics, using concepts like total output, the unemployment rate, the national debt, total investment, etc

Question 12

Scarcity

Answer 12

when we have many more wants than our resources can satisfy

Question 13

Marginal value

Answer 13

value of the individual units of that something

Question 14

Marginal analysis

Answer 14

yes

Question 15

Law of Diminishing Returns

Answer 15

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; as production increases, marginal cost rises

Question 16

Demand

Answer 16

the relationship between the possible prices of something and the quantities people are willing to buy, all things being equal

Question 17

The DEMAND curve is the same as

Answer 17

the marginal value curve

Question 18

Demand can change if

Answer 18

either more or fewer people are in the market or if the individuals already in the market have higher or lower values

Question 19

Supply

Answer 19

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

Question 20

Social gain

Answer 20

Total value- total cost
and
consumer gain+producer gain

Question 21

Consumer gain

Answer 21

Total value- total amount paid as price

Question 22

Producer gain

Answer 22

total amount paid- total cost

Question 23

Why does marginal cost rise as more is consumed?

Answer 23

optimal arrangement principle

Question 24

How are decisions made using marginal analysis?

Answer 24

Take an action if and only if the marginal value is as great as the marginal cost

Question 25

Why does marginal cost slope upward in production?

Answer 25

because of the law of diminishing returns. Also, apply the optimal arrangement principle to owner’s time

Question 26

Are jobs costs or benefits to society?

Answer 26

Labor is a resource. It has costs (the wage) and gives benefits (extra production)

Question 27

If we know the marginal cost of producing a good, how much of a good will the firm supply?

Answer 27

The firm will supply all units which have a cost less than or equal to the price

Question 28

Supply slopes upward because of

Answer 28

The Law of Diminishing Returns and optimal arrangement principle applied to the entrepreneur’s time

Question 29

Demand slopes downward because

Answer 29

the marginal value of a good falls as more is consumed

Question 30

Supply will change (shift) if

Answer 30

technology changes or if the prices of the resources change

Question 31

A shortage in the market can only be caused by

Answer 31

a price that is lower than the equilibrium price

Question 32

Producer gain

Answer 32

total amount paid as price- total cost