Chapter 1

Question 1

• What can Econ provide & not provide?

Answer 1

• Provides: Factual knowledge on issues

- Does not Provide: Final decision

Question 2

• What is ‘‘Margine Analysis”? (MA)

Answer 2

• The analysis of marginal costs, to determine ways to increase profits.

Question 3

• How is EM used?

Answer 3

• EM represents an ET or part of an ET, used to gain insight in the Cause & Effect of an econ phenomenon.

Question 4

• How is ET used in policy?

Answer 4

• To analyze policy options by eval. possibilities that have not yet occurred.

Question 5

• Why is “Voluntary exchange”(VE) an econ fundamental?

Answer 5

• The exchange is mutually beneficial. Laws can prohibit VE.

Question 6

• What are externalities?

Answer 6

• The affected parties outside of an exchange. E.g. Farmers Poison ground water w/ pesticides & negatively affect the health of communities. communities are the externalities in this example.

Question 7

What is used to interpret data?

Answer 7

• ET is usually needed to interpret data

Question 8

• How is econ described as a discipline?

Answer 8

• Social > scientific
• Borrows modes of analysis from other fields
• Stats play greater role in analysis
• Statistical procedures are modified to fit econ needs

Question 9

• Efficiency ≠ Equality in what way?

Answer 9

• US econ ↑ efficiency = greater separation of rich & poor
• Euro econ ↑ equality = ↓ econ pie size

Question 10

• What did A.W. Phillips discover?

Answer 10

• Phillips curve

- Engineer turned economist

Question 11

• Why is common sense not the best way to make econ decisions?

Answer 11

• Because sometimes the answer to a question is counterintuitive.

Question 12

• How does Gov. limit econ flux?

Answer 12

• “Monetary Policy” (MP) = control of $ + interest rates
• “Fiscal Policy” (FP) = control over taxes & Gov. spending
• Market Econ = fluctuates “Boom & Bust” (B&B); includes Biz Cycle which has B&B also
• FP & MP sometimes fail due to unpredictable policy or market reactions

Question 13

• What is an “Econ Model” (EM)

Answer 13

• EM = small scale version of an aspect of the economy. EM are expressed as Equations, Graph or words

Question 14

• What is “Opportunity Cost?” (OC)

Answer 14

• The OC is a decision - the value of the next best alternative that must be given up because of that decision. e. g. Working instead of school
• The true cost is what is being given up. E.g. Working wages + college costs = True Cost of college.

Question 15

• Why are there disagreement among economists?

Answer 15

• Econ = Social Sci. Some ppl feel competent to join public discussion
• Facts needed to solve disputes are sometimes unk.

Question 16

• What is “Abstraction?”

Answer 16

• ignoring details to focus on most important aspect of a problem. e.g. the map analogy in chapter 1.

Question 17

• Who rejects ET most often? & Why?

Answer 17

• Policy makers + Biz people
  • Why?
  - ET sometimes not seen as practical

Question 18

• What is “Econ Theory?” (ET)

Answer 18

• Deliberate simplification of relationships to explain how those relationships work.
• Abstraction is used in ET for simplification of details.
• Theory ≠ hypothesis
  - Theory = explanation of mechanism behind observed phenomena.

Question 19

• Attempts to control supply and demand have often what effect?

Answer 19

• Usually the opposite of intention, e.g Rent caps Less $ For landlords and less property development = fewer consumer choices.

Question 20

• How is Abstraction applied?

Answer 20

• Dependent on the question asked. Degree of abstraction depends on objective of analysis.

Question 21

• Why is econ 101 eye opening?

Answer 21

• Can help answer Q’s like: what jobs are growing, Price fluctuations, Pollution, corp. oversight, econ histories.

Question 22

• Why is it important to understand Econ principles?

Answer 22

• To make wiser decisions.

Question 23

• What is economic “Tradeoff?” (maybe incorrect)

Answer 23

• The tradeoff between econ size & equality of National output.
• Decreased inflation = increased unemployment ≠ causation tho.
• Increased inflation = decreased unemployment ≠ causation
• Trade-off between inflation & unemployment

Question 24

• What is “Correlation”?

Answer 24

• Variables move ↑or↓ together but ≠ causation

Question 25

• What is the “Law of comparative advantage?” CA

Answer 25

CA= efficient production > less efficient prod. Then trade for products that are less efficient to produce.

Question 26

• Why is Productivity Growth (PG) almost everything in the long run?

Answer 26

• Increased productivity per hour = higher standard of living.

Question 27

• What is econ?

Answer 27

Asking + answering questions related to pressing global econ problems.

Question 28

• How can rational decisions be made better?

Answer 28

• Figuring the OC into decision models.