Econ Ch 1

Question 1

Economics

Answer 1

the study of how individuals make choices under scarcity

Question 2

choice

Answer 2

the act of selecting among alternatives

Question 3

scarcity

Answer 3

then concept that there is less of a good freely available from nature that people would like
- not the same as poverty (scarcity - objective, poverty - subjective)
- necessitates rationing
- leads to competitive behavior

Question 4

Rationing

Answer 4

allocating scarce goods to those who want them
- determines how people act
- price is used to ration goods

Question 5

resource

Answer 5

an input used to produce an economic good

Question 6

human resources

Answer 6

Things we cant touch or grasp, make a person valuable, provide something
- strength, knowledge, creativity

Question 7

physical resources

Answer 7

handmade tools we use to produce other things

Question 8

natural resources

Answer 8

come from nature
- does not have to made into something else to work

Question 9

capital

Answer 9

human made resources used to produce other goods and services

Question 10

8 guideposts to economic thinking

Answer 10

1. resources are scarce, so decision makers must make trade-offs
2. individuals are rational - they try to get the most from their limited resources
3. incentives matter - choice is influenced in a predictable way by changing incentives
4. individuals make decisions at the margin
5. information helps us make better choices, but is costly
6. beware of secondary effects- economics action generate both direct and indirect effects
7. the value of a good or service is subjective
8. the test of a theory is its ability to predict real world events

Question 11

opportunity cost

Answer 11

the highest valued alternative that must be scarified when choosing an option
- example in notes

Question 12

utility

Answer 12

economic good for happiness
- greatest benefit for the least possible cost

Question 13

marginal

Answer 13

describes the effect of a change in the current situation
- cost and benefit

Question 14

cost-benefit analysis

Answer 14

one will undergo an action when the marginal benefits outweigh the marginal costs
- examples on notes

Question 15

secondary effect

Answer 15

the indirect impact od an event or policy that may or may not be easily and immediately observable

Question 16

positive economics

Answer 16

the scientific study of what is (testable)

Question 17

normative economics

Answer 17

judgements about what people think should be (not testable)

Question 18

4 pitfalls to avoid in economic thinking

Answer 18

1. violation of ceteris paribus principle
2. the belief that good intentions guarantee desirable outcomes
3. the belief that association is causation
4. fallacy of composition: the fallacious belief that what is true for one id true for all

Question 19

ceteris paribus

Answer 19

other things constant

Question 20

microeconomics

Answer 20

focus on how human behavior affects the conduct of affairs within individually defined units such as household or firms (the trees)

Question 21

macroeconomics

Answer 21

focuses on how human behavior affect the outcome in highly aggregated markets such as the nations market for labor (the forest)