Chapter 1 - Ten Principles of Economics

Question 1

Scarcity?

Answer 1

the limited nature of society’s resources

Question 2

What is the largest cost of attending University?

Answer 2

The time lost to lecture, readings, homework- instead of working and making money.

Question 3

Opportunity Cost

Answer 3

Whatever you are giving up to obtain something.

Question 4

Marginal Change

Answer 4

Changing something by little increments (ex. getting $20 of gas versus getting either none or a full tank)

Question 5

Marginal cost?

Answer 5

Marginal cost refers to the cost of an additional unit of whatever you are producing/providing. Associated with the producer and consumer. (ex. for the consumer- ads on netflix)

Question 6

Marginal Benefit?

Answer 6

Marginal benefit refers to the benefit gained by providing or receiving an extra unit of something. Can be associated with both the producer and consumer.

Question 7

What is an incentive?

Answer 7

An incentive is something that motivates or encourages an individual or group of people to do something, but doesn’t force them to do it.

Question 8

Positive and negative incentives?

Answer 8

Positive incentive is something like a reward.
Negative incentive is something like a fine.

Question 9

Market Economy

Answer 9

is an economy where the allocation of resources is up to the consumers and producers of a society.

Question 10

What are some aspects of a market economy?

Answer 10

1. Supply and Demand
2. Freedom to buy and sell whatever (mostly)
3. Competition
4. Ownership (of businesses, products, etc.)
5. Government role (more like a referee)

Question 11

Adam Smith’s Invisible Hand

Answer 11

Adam Smith believed that through a market economy prices can properly allocate resources based on the degree of demand. Through the pursuit of self interest the economy can be “stabilized”

Question 12

Government Involvement

Answer 12

With the government refereeing the economy, the Invisible Hand wouldn’t work. People would disrupt this concept without a governments rules and regulations (ex. farmers crops getting stolen will prevent them from farming)

Question 13

Property Rights

Answer 13

The rights of individuals when it comes to using a property/commodity for profit.

Question 14

Economic Pie

Answer 14

Economic Pie represents the economy. When talking about a division of the pie we are referring to economic equality. When talking about an enlargement we are referring to economic efficiency.

Question 15

Market Failure

Answer 15

When the efficiency of the market is not good, in other words the Invisible Hand is not working like its supposed to.

Question 16

Causes of Market Failure

Answer 16

1. Externalities - side effects resulting of economic activity that affect third party individuals that are not involved (positive and negative)
2. Market Power - a single firms ability to influence market prices (monopolies, oligopolies)

Question 17

Productivity

Answer 17

A countries productivity determines its standard of living. While aspects such as minimum wage laws and labour unions improve living standard, productivity drives it the most. Policy makers can create higher productivity through different aspects such as education or advanced technology.

Question 18

Inflation

Answer 18

Increasing prices over a period of time. Due to varying factors such as increasing demand, rising cost, changes in supply (ex. shortages), government policies, global factors (international trade)
A little bit of inflation can be a good thing but a bad thing if it happens too quickly.

Question 19

Business Cycle

Answer 19

The fluctuations in the economy are measured by the production of goods and services or the number of people employed.

Question 20

Government Response to Inflation

Answer 20

1. Interest rates increase - when borrowing money costs more people will spend less
2. Decrease in government spending, increase in taxes