Chapter 1- Economic Decisions

Question 1

Economics

Answer 1

discipline that studies how efficiently decisions are made

Question 2

Efficient decisions

Answer 2

involve choosing the most valuable alternative

Question 3

Theory of revealed preference

Answer 3

our choices (in regards to products) reveal our values

Question 4

Optimal arrangement principle

Answer 4

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

Question 5

Value (to an individual)

Answer 5

measured by the maximum value you’re willing to give up/sacrifice to obtain a good

Question 6

Cost

Answer 6

what an individual has to give up in order to purchase a good

Question 7

Value of things you own

Answer 7

the minimum amount you’re willing to accept in exchange for your belonging

Question 8

Value depends on what three things?

Answer 8

the person, the situation, and the number of available goods

Question 9

Subsequent units have a product decrease in what?

Answer 9

value

Question 10

Marginal value (marginal benefit)

Answer 10

value of individual units of product

Question 11

Demand

Answer 11

the relationship between the price and quantities demanded, all other things being equal

Question 12

Supply

Answer 12

the relationship between the possible price of something and the quantities that people/firms are willing and able to sell

Question 13

Principle of optimal arrangement

Answer 13

allocate product to the best use first, second best use second, and so forth

Question 14

Law of Diminishing Returns

Answer 14

(assuming fixed size of facilities) as a firm adds workers, the extra output from extra workers decreases (extra value of each new worker is less than that of the last new worker)

Question 15

Scarcity

Answer 15

having more wants than resources can satisfy

Question 16

We consume units of product until when?

Answer 16

marginal cost and marginal value are equal

Question 17

social gain

Answer 17

total value - total cost

Question 18

consumer’s gain

Answer 18

total value - total amount paid

Question 19

producer’s gain

Answer 19

total amount paid - total cost

Question 20

What is the economic problem?

Answer 20

allocating scarce resources to their best uses

Question 21

Changes in supply

Answer 21

producers wish to produce more or less, even if the price does not change

Question 22

Changes in demand

Answer 22

consumers wish to buy more or less, even if the price does not change

Question 23

What causes changes in demand?

Answer 23

Caused by changes in things that influence the consumer’s willingness to purchase the product

Question 24

What causes changes in supply?

Answer 24

new technology, new resources, scarcity of resources, lack of new innovative technology/methods of production

Question 25

When supply increases, the supply curve shifts how?

Answer 25

down and to the right

Question 26

When demand increases, the demand curve shifts how?

Answer 26

up and to the right