Chapters 1 & 2

Question 1

Opportunity Cost

Answer 1

Highest forgone benefit

Question 2

Economics

Answer 2

Science that studies how to use our scarce resources to satisfy our unlimited needs

Question 3

Microeconomics

Answer 3

Branch of economics that studies the behaviour of each individual economic unit

Question 4

Macroeconomics

Answer 4

Branch of economics that studies the behaviour of the whole economy

Question 5

Production Possibility Curve

Answer 5

Shows the different bundles from any two goods that we could produce using all available resources

Question 6

Law of Increasing Opportunity Cost

Answer 6

The amount we have to sacrifice to produce one good instead of another because resources are not easily transferable from one use to another

Question 7

Consumer Goods

Answer 7

Used for consumption

Question 8

Capital Goods

Answer 8

Used for production

Question 9

Specialization

Answer 9

Concentration on the production of one or few goods

Question 10

Comparative Advantage

Answer 10

To be able to produce a good at a lower opportunity cost

Question 11

Labour Intensive

Answer 11

Production uses more labour

Question 12

Capital Intensive

Answer 12

Production uses more of capital

Question 13

Free Market Economy

Answer 13

Private decisions determine how resources are allocated, “consumer sovereignty”

Question 14

Command Economy

Answer 14

Government determines allocation of resources through central planning

Question 15

Mixed Economy

Answer 15

Both private and public sectors determine allocation of resources

Question 16

Positive Incentives

Answer 16

Used to encourage an activity by increasing benefits or lowering costs

Question 17

Negative Incentives

Answer 17

Used to discourage an activity by increasing benefits or lowering costs

Question 18

Goods

Answer 18

Items we desire or value

Question 19

Bads

Answer 19

Items we don’t desire or value

Question 20

Correlation

Answer 20

Two events or variable tend to occur together, but they do not cause each other

Question 21

Causation

Answer 21

One event or variable causes another event to happen

Question 22

Theory

Answer 22

An explanation for a phenomenon

Question 23

Hypothesis

Answer 23

A proposition or claim that can be tested

Question 24

Empirical Analysis

Answer 24

Examining data to see if a hypothesis is correct

Question 25

Efficiency

Answer 25

To get the most output from our resources

Question 26

Market Failure

Answer 26

Free market fails to achieve efficiency

Question 27

Monopoly

Answer 27

A single seller controls the entire means of production

Question 28

Ceterius Paribus

Answer 28

“Other factors kept constant”, in order to study the effect of one variable we must keep all other factors constant

Question 29

Fallacy of composition

Answer 29

“Mistake of generalizing”, if a certain behaviour is true at the individual level it may not be true at the group level

Question 30

Positive Statements

Answer 30

Objective statements, don’t reflect opinions, could be tested

Question 31

Normative Statements

Answer 31

Subjective statements, reflect opinions, not tested