Chapter 1 - INTRODUCTION TO MICROECONOMICS

Question 1

When the mix of goods produced represents the mix that society most desires

Answer 1

allocative efficiency

Question 2

All possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set

Answer 2

budget constraint

Question 3

Questions aimed at finding out whether a variable causes or affects one or more outcome variables

Answer 3

causal questions

Question 4

Individuals making decisions, considering the costs and benefits of different alternatives

Answer 4

choice

Question 5

A diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market

Answer 5

circular flow diagram

Question 6

When a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production

Answer 6

comparative advantage

Question 7

A comparison of two different economic outcomes, before and after a change in some underlying economic force; enables one to run a thought experiment by comparing two different economic outcomes

Answer 7

comparative statics

Question 8

Thought experiments; the answer to a “what if…” question

Answer 8

counterfactual

Question 9

A model is in equilibrium when everyone in the model is making the best decision they can, given the decisions of everyone else; called an equilibrium because no one wants to change what they are doing

Answer 9

equilibrium

Question 10

A market in which firms are sellers of what they produce and households are buyers

Answer 10

goods and services market

Question 11

The market in which households sell their labor as workers to business firms or other employers

Answer 11

labor market

Question 12

As we consume more of a good or service, the utility we get from additional units of the good or service tends to become smaller than what we received from earlier units

Answer 12

law of diminishing marginal utility

Question 13

As we add additional increments of resources to producing a good or service, the marginal benefit from those additional increments will decline

Answer 13

law of diminishing returns

Question 14

Examination of decisions on the margin, meaning a little more or a little less from the status quo; examining the benefits and costs of choosing the next unit of a good or service

Answer 14

marginal analysis

Question 15

An applied or empirical representation of an object or situation often used to test a theory; helps us make sense of and simplify complicated data; deliberate simplifications that enable economists to understand what causes what by ignoring extraneous details

Answer 15

model

Question 16

Statement which describes how the world should be

Answer 16

normative statement

Question 17

Measures cost by what we give up/forfeit in exchange; measures the value of the forgone alternative

Answer 17

opportunity cost

Question 18

All possible combinations of consumption that someone can afford given the prices of goods and the individual’s income

Answer 18

opportunity set

Question 19

Statement which describes the world as it is

Answer 19

positive statement

Question 20

A diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available

Answer 20

production possibilities frontier (PPF)

Question 21

When it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)

Answer 21

productive efficiency

Question 22

Costs that we make in the past that we cannot recover; these costs should not affect decision-making because they cannot be recovered

Answer 22

sunk costs

Question 23

The phenomenon in which we are pushed toward equilibrium when in surplus or shortage

Answer 23

the invisible hand of the market

Question 24

A representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation

Answer 24

theory

Question 25

Satisfaction, usefulness, or value one obtains from consuming goods and services

Answer 25

utility

Question 26

The durable non-labor inputs used in production (buildings, software)

Answer 26

capital goods

Question 27

An economy where economic decisions are passed down from government authority and where the government owns the resources; an economic system in which the government dictates what is produced and for whom goods and services are produced.

Answer 27

command economy

Question 28

The way in which different workers divide required tasks to produce a good or service

Answer 28

division of labor

Question 29

A way of organizing an economy that is distinctive in its basic institutions.

Answer 29

economic systems

Question 30

A set of tools for studying the economy; the study of how humans make choices under conditions of scarcity

Answer 30

economics

Question 31

When the average cost of producing each individual unit declines as total output increases

Answer 31

economies of scale

Question 32

Products (goods and services) made domestically and sold abroad

Answer 32

exports

Question 33

Economic organizations in which private owners of capital goods hire and direct labor to produce goods and services for sale on markets to make a profit

Answer 33

firms

Question 34

Economic policies that involve government spending and taxes

Answer 34

fiscal policy

Question 35

Total GDP divided by the population

Answer 35

GDP per capita

Question 36

The trend in which buying and selling in markets have increasingly crossed national borders

Answer 36

globalization

Question 37

The total market value of all goods and services, a measure of economic well being; measure of the size of total production in an economy

Answer 37

gross domestic product (GDP)

Question 38

Change in value divided by initial value; often expressed as percentages and may be positive or negative

Answer 38

growth rate

Question 39

Products (goods and services) made abroad and then sold domestically

Answer 39

imports

Question 40

The laws and informal rules that regulate social interactions among people, and between people and the biosphere. Sometimes also termed “the rules of the game.”

Answer 40

institutions

Question 41

The branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance

Answer 41

macroeconomics

Question 42

Interaction between potential buyers and sellers; a combination of demand and supply; a way for people to exchange products and services for their mutual benefit

Answer 42

market

Question 43

An economy where economic decisions are decentralized, private individuals own resources, and businesses supply goods and services based on demand

Answer 43

market economy

Question 44

The branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms

Answer 44

microeconomics

Question 45

Policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing

Answer 45

monetary policy

Question 46

When GDP is calculated using the prices at which goods are sold, unadjusted for inflation

Answer 46

nominal GDP

Question 47

System where private individuals or groups of private individuals own and operate the means of production (resources and businesses)

Answer 47

private enterprise

Question 48

Ownership rights over possessions (including capital goods)

Answer 48

private property

Question 49

A way to compare the GDP across countries; the exchange rate of currency 1 to currency 2; the cost of goods and services in currency 1 divided by the cost of goods and services in currency 2

Answer 49

purchasing power parity (PPP)

Question 50

Nominal GDP adjusted for inflation; the year that is used to compute the real GDP is called the base year

Answer 50

real GDP

Question 51

When human wants for goods and services exceed the available supply

Answer 51

scarcity

Question 52

When workers or firms focus on particular tasks for which they are well-suited within the overall production process

Answer 52

specialization

Question 53

The process of using a set of materials and other inputs, like the work of people and machines, to produce an output

Answer 53

technology

Question 54

A wave of technological advances starting in Britain in the 18th century, which transformed an agrarian and craft-based economy into a commercial and industrial economy

Answer 54

the industrial revolution

Question 55

Typically an agricultural economy where things are done the same as they have always been done; economic affairs are organized based on customary practice

Answer 55

traditional economy

Question 56

A market where the buyers and sellers make transactions in violation of one or more government regulations

Answer 56

underground economy

Question 57

Explain the formula for Purchasing Power Parity

Answer 57

divide the cost of goods and services in currency 1, by the cost of goods and services in currency 2

Question 58

List the 3 components of an economic model

Answer 58

equilibrium, choice and comparative statics

Question 59

Explain the equation for Budget Constraint

Answer 59

Budget = P1 X Q1 + P2 X Q2

Question 60

How do you find opportunity cost?

Answer 60

divide the two prices on the budget constraint graph. This number is also called the slope.

Question 61

When a country can produce more of a good

Answer 61

absolute advantage