Chapter 1

Question 1

Why is economics called the dismal science?

Answer 1

First used by thomas Carlyle after Thomas Malthus predicted that population growth coupled with the planet’s limited resources would lead to widespread starvation.

Question 2

What was something Malthus did not take into account when making his predictions?

Answer 2

Increasing technology and productivity.

Question 3

What are the five foundations of economics?

Answer 3

1) Incentives. 2) Trade-offs. 3) Opportunity Cost. 4) Marginal Thinking. 5) Principle that trade creates value.

Question 4

Scarcity

Answer 4

Refers to the limited nature of society’s resources given unlimited wants and needs. (Imagine Skeksi arguing over who gets the last essence)

Question 5

Economics

Answer 5

The study of how individuals and societies allocate their limited resources to satisfy their nearly unlimited wants. (Imagine there is only one grilled cheese left in existence, no others can be made. Imagine an individual and a society deciding who gets the last grilled cheese)

Question 6

Microecnomics

Answer 6

The study of the individual units which make up the economy.

Question 7

Macroeconomics

Answer 7

Study of the overall aspects and workings of an economy.

Question 8

Incentives

Answer 8

Factors which motivate a person to act or exert effort

Question 9

What are the four kinds of incentives?

Answer 9

1) Positive.
2) Negative
3) Direct
4) Indirect

Question 10

What are some examples of unintended consequences?

Answer 10

1) People staying on welfare despite lacking a need to have welfare. 2) Australia’s 2004 Baby Bonus leading to delaying having a child. 3) US tax incentives leading to cesarean or induced labor prior to the new year.

Question 11

Trade offs

Answer 11

Every decision incurs a cost. By understanding trade offs we will make more informed decision about how to utilize scarce resources.

Question 12

Opportunity costs

Answer 12

The highest valued alternative that must be sacrificed to get something else.

Question 13

Economic thinking

Answer 13

Requires a purposeful evaluation of the available opportunities to make the best decision possible.

Question 14

Marginal thinking

Answer 14

requires decision makes to evaluate the benefit of one more unit of something.

Question 15

Circular flow

Answer 15

Shows how goods and services flow through the economy.

Question 16

Product market

Answer 16

Market between households and firms.

Question 17

Resource market

Answer 17

Market between households and firms where households act as sellers and firm act as buyers.

Question 18

Barter

Answer 18

Involves individuals trading a good they already have or providing a service in exchange for something they want.

Question 19

Double coincidence of wants

Answer 19

Occurs when each party in an exchange transactions has what the other party desires.

Question 20

Trade

Answer 20

Voluntary exchange of goods and services between two or more parties.

Question 21

Comparative advantage

Answer 21

A situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can.

Question 22

Why is outsourcing important to economic growth?

Answer 22

If a firm can get the same service by outsources customer service, it leads to lower costs for the company and subsequently lower cost for the consumer. This leads to economic growth because the same money can buy more goods and services.