Chapter 1

Question 1

Economics is a discipline best described as _____

It is the study of how,_____

The economic method is ____

Answer 1

1. the study of human interaction in the context of scarcity.
2. individually and collectively, people use their scarce resources to satisfy as many of their wants as possible.
3. founded in a set of presuppositions about human behavior on which economists construct theoretical models.

Question 2

Economics is a way of thinking about _______

Economics is especially applicable to _______

Economics’ ability to explain behavior in personal realms (where a variety of motives, including love and beneficence, can ______

Answer 2

1. virtually everything, including the issues that managers confront daily.
2. usiness dealings in markets where economic interests (“what can you do for me and I can do for you on financial terms”) are dominant.
3. have powerful coordinating effects on behavior) loses some (but not all) of its force.

Question 3

Communally owned property is ______

This is because they affect ______

They also affect the ______

Answer 3

1. a common cause of resource misuse and overuse. Private property rights matter because they affect people’s incentives to use scarce resources.
2. people’s rewards from effectively utilizing scarce resources.
3. costs people incur from misusing and abusing scarce resources.

Question 4

Property rights are _____

They can be a problem when ______

Answer 4

1. crucial to the efficient allocation of resources that are depleted or devalued in some way when used and when transaction costs are low.
2. transaction costs are high and the use of the resource does not deplete the resource or devalue it.

Question 5

Not all potential tragedies of the commons need _____

Voluntary associations and firms are _____

Answer 5

1. to be resolved through private property rights and government regulation.
2. means by which the overuse of communally owned resources has been abated.

Question 6

For trade to recur and be systematic, it must ______

trade can be mutually beneficial even ________

Answer 6

1. be mutually beneficial to the trading partners
2. when one party to the trades is more efficient in both goods subject to trade.

Question 7

In general, incentives of all kinds matter in ______

There is obviously profit to be made from developing ____

Less widely recognized is the fact that ______

Answer 7

1. how effectively (or ineffectively) scarce resources are utilized.
2. better, improved goods and services
3. there is also profit to be made from developing better, more cost-effective incentive systems.

Question 8

Overcoming Prisoner’s Dilemmas is _____

Answer 8

a pervasive problem in the development of social and management policies.

Question 9

Market

Answer 9

A market is the process by which buyers and sellers determine what they are willing to buy and sell and on what terms. It is the process by which buyers and sellers decide the prices and quantities of goods that are to be bought and sold.

Question 10

Entrepreneur

Answer 10

an enterprising person who discovers potentially profitable opportunities and organizes, directs, and manages productive ventures.

Question 11

Resources

Answer 11

things used in the production of goods and services. There are only so many acres of land, gallons of water, trees, rivers, wind currents, oil and mineral deposits, trained workers, and machines that can be used in any one period to produce the things we need and want.

Question 12

Scarcity

Answer 12

is the fact that we all cannot have everything we want all the time.

Question 13

Economics

Answer 13

a method of thinking founded on the study of how people cope with the pressing choice problems associated with scarcity, with their efforts directed (primarily) toward satisfying as many wants as possible.

Question 14

Theory

Answer 14

A model of how the world is put together; it is an attempt to uncover some order in the seemingly complex and often seemingly random events of daily life. Theory is how we make sense of the world.

Question 15

Game theory

Answer 15

is a matrix device used to discuss people’s decisions when their most preferred course of action depends on the choices of others.

Question 16

Property rights

Answer 16

pertain to the permissible use of resources, goods, and services; they define the limits of social behavior – what can and cannot be done by individuals in society. They also specify whether resources, goods, and services are to be used privately or collectively by the state or some smaller group.

Question 17

residual claimant is

Answer 17

anyone who receives the leftover gains (or losses) after all other claims have been satisfied. (Like a property owner or landlord)

Question 18

monopoly

Answer 18

a single seller of a good or service that can charge higher prices and reap greater profits by restricting the quantity of the good it sells.

Question 19

Five Categories of Resources

1

2

3

4

5

Answer 19

Land

Labor

Capital

Technology

Entrepreneurial Talent

Question 20

The tragedy of the commons

Answer 20

an economic problem in which every individual has an incentive to consume a resource at the expense of every other individual with no way to exclude anyone from consuming.

Question 21

An anticommons occurs when

Answer 21

too many individuals have rights of exclusion in a scarce resource. The tragedy is that rational individuals, acting separately, may collectively waste the resource by under-utilizing it compared to a social optimum.