Chapter 1 Concepts and Terms

Question 1

Economics

Answer 1

the discipline that studies how efficient decisions are made

Question 2

Theory of Revealed Preference

Answer 2

your choices reveal your values

Question 3

Characteristics of Value

Answer 3

value depends on the situation; value is different for different people; subsequent units of the same good have less value

Question 4

The Optimal Arrangement Principle

Answer 4

the idea that we first choose the best choice (based on what is most valuable), then the second best, and so on…

Question 5

How do we Measure Value?

Answer 5

The value of something to an individual is the most that individual is willing to give up to obtain that something.

Question 6

Cost

Answer 6

the value of the next best thing that you give up when you make a decision (may or may not involve spending money)

Question 7

No Free Lunch Principle

Answer 7

any decision involves cost; something is always sacrificed when a decision is made

Question 8

Macroeconomics

Answer 8

the study of whole economies, using concepts like total output, the unemployment rate, the national debt, total investment…

Question 9

Scarcity

Answer 9

we have many more wants than our resources can satisfy

Question 10

Marginal Value

Answer 10

the value of the individual units of a good or service

Question 11

Marginal Analysis

Answer 11

we consume each unit for which the marginal value is at least as great as the marginal cost

Question 12

Law of Diminishing Returns

Answer 12

as we add more members to the workplace/a production facility, eventually they become less productive because there is no way for everyone to take part in the production process

Question 13

Demand

Answer 13

the relationship between the possible prices of something and the quantities people are willing to buy, all things being equal - marginal value and demand curves are the same - DEMAND CAN CHANGE

Question 14

Supply

Answer 14

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 15

What would happen with a Surplus?

Answer 15

producers would eventually have to lower their prices to get rid of the surplus

Question 16

What would happen with a Shortage?

Answer 16

sellers see that they can charge more and still sell all they are producing

Question 17

What happens at the Equilibrium Price?

Answer 17

consumers can buy all they want, at the same time, firms can sell all they want

Question 18

Social Gain

Answer 18

the Total Value - Total Cost

Question 19

How does Social Gain increase.

Answer 19

as long as the value of a unit is greater than the cost, the overall social gain increases as more is produced

Question 20

What happens when the price is above/below the equilibrium price?

Answer 20

gain goes to the consumer; gain goes to the producers

Question 21

The Economic Problem

Answer 21

allocating scarce resources to their best uses

Question 22

What solves the economic problem?

Answer 22

free people, interacting in free markets

Question 23

Changes in Supply

Answer 23

shifts in the supple curve; producers wish to produce more or less, even if the price does not change; CAUSED BY CHANGES IN THE PRODUCER’S COSTS

Question 24

Changes in Demand

Answer 24

shifts in the demand curve; consumers wish to buy less or more, even if the price doesn’t change; caused by changes in things that influence the consumer’s willingness to purchase the product (have nothing to do with the price of the product)

Question 25

The SEEN

Answer 25

the immediate effect; the first one

Question 26

The UNSEEN

Answer 26

the subsequent effects, they must be FORSEEN

Question 27

Destruction is NOT Profitable

Answer 27

if you break something to try and make an industry profit; society (the economy), is not profitable - it has lost the initial value of what is broken

Question 28

Bastiat’s Feelings Toward Public Spending (Subsidies)

Answer 28

Subsidies are always a substitute for private spending, and that consequently it may well support one worker in place of another but adds nothing to the lot of the working class taken as a whole.