Chapter 1: Economic Principles 1-4

Question 1

What is economics?

Answer 1

• social science
• economics study the choices people make, why they do it, and how choices interact

Question 2

What is individual choice?

Answer 2

• the decision by an individual of what to do, which necessarily involves a decision of what NOT to do
  ex. wearing a sweatshirt to work

Question 3

What are the 4 basic principles of individual choice?

Answer 3

1. resources are scarce
2. The real cost of something is what you must give up to get it
3. “How much?” is a decision at the margin
4. People usually take advantage of opportunities to make themselves better off

Question 4

What is a resource?

Answer 4

• anything that can be used to produce something else

Question 5

What are the 4 examples of resources?

Answer 5

1. Land
2. Labour - number of ppl able to work
3. Capital - physical (roads, buildings, etc)
4. Human Capital - quality of edu + skills ppl have

Question 6

Is money a resource?

Answer 6

• no, it is earned with time

Question 7

What is it meant by “resources are scarce?”

Answer 7

• the quantity available isn’t large enough to satisfy all productive uses
  ex. petroleum, lumbar, intelligence, time

Question 8

The true cost of an item is its ___ ____

Answer 8

opportunity cost

Question 9

What is opportunity cost?

Answer 9

What you give up in order to get an item
ex. what is the cost of your university degree?

Question 10

What are the 2 types of costs?

Answer 10

• direct (monetary exchange)
• implicit (value of what you are giving up)
  all costs are OC

Question 11

What is the next best alternative?

Answer 11

• What you will do if you cannot do the first thing
  ex. If you did not go to uni, you would be working full time making money

Question 12

When you ask the question “How much?” you are making a decision at the margin. What does this mean?

Answer 12

• You make a trade-off when you compare the costs with the benefits of doing something

Question 13

What are marginal decisions?

Answer 13

• decisions about whether to do a bit more or a bit less

Question 14

What is marginal analysis? (2)

Answer 14

• Making trade-offs at the margin
• comparing the costs and benefits of doing a little bit more of an activity versus doing a little bit less
  ex. hiring one more worker, studying one more hour

Question 15

What do people usually respond to, and why?

Answer 15

• incentives
• exploit opportunities to make themselves better off

Question 16

What are incentives?

Answer 16

• anything that offers rewards to people who change their behaviour
  ex. prices of gas rise, people buy more fuel-efficient cars
  ex. More well-paid jobs for uni students with economics degree, more students major in economics

Question 17

What do incentives change?

Answer 17

• change in human behaviour
• intentional and unintentional change

Question 18

What is an unintentional behaviour change? just give an example

Answer 18

Changing maternity leave
- younger kids in kindergarden cuz ppl get pregnant at a certain time
- as opposed to intentional behaviour change, where point of policy is to change behaviour

Question 19

What does a good social order align with?

Answer 19

• aligns self-interest with social interest