ECON 102 Midterm Review 1

Question 1

Economics

Answer 1

The social science that studies production and trade

Question 2

Spontaneous Order

Answer 2

order that is the product of human action, but not human design

Question 3

Microeconomics vs. Macroeconomics

Answer 3

Microeconomics is economics in general, while macroeconomics is a subfield focusing on money

Question 4

Economics and business

Answer 4

impacts stocks, prices, etc

Question 5

Economics and Social issues

Answer 5

impacts jobs, salaries, etc

Question 6

positive analysis

Answer 6

analysis concerned with what is or will be

Question 7

normative analysis

Answer 7

analysis concerned with what ought to be

Question 8

Theory

Answer 8

an abstract explanation of some phenomenon

Question 9

society

Answer 9

a group of people with moral, political or economic relationships with each other

Question 10

social system

Answer 10

A set of rules that determine the role of physical force in human relationships

Question 11

market economy

Answer 11

a social system in which resources are privately owned and controlled- capitalism

Question 12

property right

Answer 12

A moral and legal right to control a resource and exclude others from using it

Question 13

command economy

Answer 13

A social system in which resources are collectively owned or controlled (typically by a government)

Question 14

mixed economy

Answer 14

A social system in which some resources are privately owned/controlled, and some are owned/controlled by the government

Question 15

The Four Starting Points of Economics

Answer 15

scarcity, unlimited desires, methodological individualism, rational choice

Question 16

scarcity

Answer 16

The amount of goods available is not sufficient to satisfy all human desires

Question 17

unlimited desires

Answer 17

No matter what one’s current circumstances, it is always possible to imagine and achieve a more desirable state of affairs

Question 18

methodological individualism

Answer 18

The principle that the individual human being is the basic unit of research in the social sciences - Only individuals have values in economics

Question 19

rational choice

Answer 19

people always pursue their values

Question 20

price system

Answer 20

A network of interconnected prices of goods and services

Question 21

Exchange of Equivalents Theory (4th Century B.C.)

Answer 21

The theory that people exchange one good for another when both parties value the goods equally

Question 22

Just Price Theory (8th Century A.D.)

Answer 22

the theory that there is a single just price at which each good should be sold

Question 23

Mercantalism (17th century A.D.)

Answer 23

Social order requires government planning, money constitutes real wealth for a nation, exchange is a zero-sum game, there is a “public interest” separate from the interests of individuals

Question 24

Real Value of Money

Answer 24

the goods and services that can be purchased with a certain amount of money

Question 25

Nominal Value of Money

Answer 25

the face value of a certain amount of money

Question 26

zero-sum game

Answer 26

a situation in which one person’s gain is another’s loss

Question 27

Classical school of economic thought

Answer 27

Adam Smith 1776 AD

Question 28

invisible hand

Answer 28

social order is the product of individual interests

Question 29

Classical Price Theory

Answer 29

Where do prices come from?

Question 30

Utility

Answer 30

the capacity to be useful and provide satisfaction

Question 31

subjective theory of price

Answer 31

The theory that the price of a good is determined by its utility

Question 32

Water-Diamond Paradox

Answer 32

Water is very useful but has a low price, while a diamond is not very useful but has a high price

Question 33

Labor Theory of Value

Answer 33

The belief that all value in produced goods is derived from labor

Question 34

Iron Law of Wages

Answer 34

Wages naturally tend to fall to the minimum level necessary for subsistence

Question 35

intrinsic value theory

Answer 35

the theory that the value of an object is inherent in the object itself