Economic Decisions

Question 1

Economics

Answer 1

the discipline that studies how efficient decisions are made

Question 2

Efficient Decisions

Answer 2

choosing the the most valuable alternative (through economic thinking)

Question 3

The Theory of Revealed Preference

Answer 3

Our choices reveal our values

Question 4

Characteristics of Value

Answer 4

– Value depends on the situation
– Value is different for different people
– Subsequent units of the same good have less value

Question 5

Optimal Arrangement Principle

Answer 5

The idea that we first choose the best, then the second best, and so on. Subsequent units have less values.

Question 6

Value of Something To An

Individual (when they want to purchase something)

Answer 6

The most that individual is willing to sacrifice to obtain that something.

Question 7

Cost

Answer 7

the value of the best alternative which is sacrificed when a decision is made. Each decision has at least 2 alternatives.

Question 8

No Free Lunch Principle

Answer 8

any decision involves costs

Question 9

Macroeconomics

Answer 9

the study of entire economies, using concepts like total output, the unemployment rate,
the national debt, and total investment

Question 10

Scarcity

Answer 10

We have many more wants than our

resources can satisfy

Question 11

Marginal Value

Answer 11

the value of the individual units of something

Question 12

Marginal Analysis

Answer 12

We consume each unit for which the marginal value is at least as great as marginal cost.

Question 13

The Value of Something to an Individual (when they own something)

Answer 13

Its value is the least the individual is willing to accept in exchange for that something.

Question 14

Marginal Cost

Answer 14

the cost individual units of something

Question 15

Law of Diminishing Returns

Answer 15

As we add workers to a production facility, eventually they become less productive because there’s no way
for everyone to take part in the production process

Question 16

Demand

Answer 16

the relationship between the possible prices of something and the quantities people are willing to
buy, all things being equal.

Question 17

Supply

Answer 17

the relationship between the possible prices of something and the quantities that people or firms
are willing and able to sell, other things equal.

Question 18

Decision Making

Answer 18

Take action if and only if the Marginal Value is at least as great as the Marginal Cost

Question 19

Equilibrium Price

Answer 19

the market price where the quantity of goods supplied is equal to the quantity of goods demanded

Question 20

Marginal Value to the Producer

Answer 20

Price

Question 21

Marginal Cost to the Producer

Answer 21

Production

Question 22

Social Gain

Answer 22

SG = Total Value - Total Cost