Chapter 1 What is Economics (Quiz 1)

Question 1

What do the outputs in micro and macro show?

Answer 1

Macro-output-growth for all goods and services
micro-output in a single market
(micro-output to a single market—microscope to micro economy, economics of a small unit.

Question 2

What is the definition of economics?

Answer 2

How to allocate limited resources

economize-find a way to economize so resources meet unlimited wants of consumers.

Question 3

What categories can efficiency fall under?

Answer 3

economic and techical-

they are not identical

Question 4

What are the factors of production?

Answer 4

1. Land
2. Labor
3. Capital
4. Entrepreneurship

Question 5

What is capital?

Answer 5

Human made resource used to make other resources

Question 6

What is entrepreneurship?

Answer 6

Taking other resources and combining them to make final goods and services.

Question 7

What is the return to land?

Answer 7

rent

Question 8

What’s the return to labor?

Answer 8

Wages and Salaries

Question 9

What is the return to capital?

Answer 9

Interest

Question 10

What is the return to entrepreneurship?

Answer 10

Profit

Question 11

What are commodities? How do the laws of economics apply to them?

Answer 11

Commodities are tangible and intangible services

The laws apply equally to both of them

Question 12

What are the 3 basic economic questions?

Answer 12

1. What
2. How
3. For whom

Question 13

What is the answer to the basic economic questions?

Answer 13

Free markets and price system

Question 14

Why a mixed economy?

Answer 14

1- Free and unregulated markets were not giving “right”answers.
-having free markets alone is problematic because prices of messages sent by the price system. Prices by themselves: put waste in stream b/c its cheap-Message from price system: dump waste in water without caring about the impact.
2- Monopoly influences-distort the allocative functions of prices
– competitive assumption
Prices send signals to business people–make products with prices going up–shows demand.
-lots of govt intervention to regulate what’s going on in markets
don’t have completely free market (invisible hand)

Question 15

What is the difference between macro and micro econ?

What do the prices indicate in each?

Answer 15

micro-small units of economics
macro-overall
prices-macro-price level-indicator for overall prices for the economy
prices-micro-price for a single group or service

Question 16

What is economic efficiency?

Answer 16

Efficiency means producing an output with the least amount of costs

Question 17

What does technical efficiency mean?

Answer 17

Producing an output with the least amount of inputs.

Question 18

*What is the difference between normative and positive?

Answer 18

Normative statements are value judgments.

-feelings, norms, values

Question 19

What are positive statements?

Answer 19

• Statements of facts.
• Truth or falsehood can be determined empirically.
• can look at real world data

Question 20

Balancing the budget is a sign of freedom is what kind of statement?

Answer 20

Normative

Question 21

y is the ________variable?

Answer 21

dependent

Question 22

X is the _________

Answer 22

independent variable

Question 23

What is opportunity cost?

Answer 23

What you would give up in foregone alternatives when any action is taken
or
The next best alternative
or
next highest value alternative
It is always a single best alternative–anytime you do anything you give up something else.

Question 24

How is per unit opportunity cost calculated?

Answer 24

Decrease in the quantity of one divided by the increase in quantity of the other.

Question 25

What is marginal cost?

Answer 25

The opportunity cost of producing another increment of a commodity.

Question 26

What does marginal refer to?

Answer 26

The last extra increment of something.

Question 27

A straight line possibility production frontier implies_____________.

Answer 27

Constant Opportunity Cost

Question 28

What does the principle of increasing opportunity cost state?

Answer 28

The opportunity cost of getting more butter increases as we produce more. For a given amount of input the marginal output of butter declines as we produce more butter.
—-> The more butter we have the harder it is to switch resources and get more of it.

Question 29

What does the principle of decreasing marginal benefit imply?

Answer 29

-on consumption side rather than the production side. Marginal benefit is the benefit we get from consuming one more unit of a commodity. The marginal benefit is measured by a person’s willingness to pay for an additional unit of a commodity.
-measured in willingness to pay..—->what you pay is an indicator of the benefit you get from the extra unit.
Presumably a consumer is willing to pay what the item is worth to them—>willingness to pay measures marginal benefit.

Question 30

The principle of diminishing marginal benefit is illustrated by?

Answer 30

A downward slope for a graph plotting the relationship between the amount consumed and willingness to pay.
–> Opportunity cost: how many guns you’ll forego to get more butter.
If you have no butter you will give up lots of guns to get more butter.

Question 31

What does the principle of diminishing marginal benefit highlight?

Answer 31

-The more we have a commodity, the less we benefit from from an additional unit and the less we are willing to pay to get an additional unit

Question 32

What is the ultimate question of economics?

Answer 32

• Where should we be on the production possibility frontier?
• All points on the frontier represent efficiency in production–because all resources being fully utilized. but we are seeking overall efficiency in the allocation of resources from both the producers and consumers point of view.
• the tradeoff is shown on the frontier–all points represent efficiency in production–fully utilized resources

Question 33

What represents an efficient use of resources?

Answer 33

being on the ppf. It means “production efficiency”
Best point to be at—> put marginal cost and marginal benefit together
-all resources utilized.. all points– production efficiency.

Question 34

Where should we be on the ppf?

Answer 34

It requires putting the marginal cost and marginal benefit together. Best point is where the points cross.

Question 35

What is the best point in regards to ppf?

Answer 35

Point of allocative efficiency..it is efficient to allocate resources this way.
MC=MB
Cost is what you value an item at.

Question 36

If MC>MB we should?

Answer 36

Cut back on butter production.

It costs more to produce than consumers feel that it’s worth it.

Question 37

If MB>MC we should?

Answer 37

Increase butter production.

—>produce more. Marginal benefit worth>cost

Question 38

How is unemployment represented on the ppf?

Answer 38

being inside the ppf

unemployment=resources not being fully utilized–labor more than 85% factory capacity used.

Question 39

How is economic growth depicted on a curve?

Answer 39

The curve moves out, away from the origin

Question 40

Economic growth is in what direction?

Answer 40

NE

Question 41

Economic growth can occur due to?

Answer 41

1. New resources, new oil fields, labor force expands, land, labor, and capital
2. Improvements in technology

Question 42

What are the 3 main macroeconomic goals of the economy?

Answer 42

1- full employment–don’t want to be inside ppf
2- price stability– full employment, prices go up b/c people buy more goods
3- economic growth– if economic growth is occurring–>can help those in poverty without taking from the rich through different taxes