Economics

Question 1

What are economics?

Answer 1

Economics is a social science concerned with how people, institutions, and society making optimal choices under conditions of scarcity.

Question 2

What is the issue with economic wants?

Answer 2

They exceed the economies production capacity.

Question 3

What is the economic perspective?

Answer 3

A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions.

Question 4

What is scarcity?

Answer 4

The limits placed on the amounts and types of goods and services available for consumption as the result of there being only limited economic resources from which to produce output.

Question 5

What does the economic perspective consider?

Answer 5

Scarcity and choice, opportunity cost, purposeful behavior to increase utility, and marginal analysis by comparing the marginal benefits and marginal costs.

Question 6

What does scarcity and choice mean?

Answer 6

Resources are scarce and choices need to be made to maximize benefits.

Question 7

What does “rational self interest” mean?

Answer 7

Individuals and business make rational decisions that will make them better not worse off.

Question 8

What is purposeful behavior?

Answer 8

Allocating time, energy, and money to maximizing satisfaction by weighing the cost and benefits. Describes when economic decisions are rational, not random or chaotic.

Question 9

What is utility?

Answer 9

The want-satisfying power of a good or service.

Question 10

What is the relationship between individuals and utility?

Answer 10

The goal is to maximize utility/satisfaction for the individual.

Question 11

What is marginal analysis?

Answer 11

The comparison of marginal benefits and marginal costs is usually for decision-making.

Question 12

What is the relationship between scarcity and marginal analysis?

Answer 12

In a world of scarcity, the decision to obtain the marginal benefit associated with some specific option always includes the marginal cost of giving up something else.

Question 13

What is the scientific method for economic principles, theories, and models?

Answer 13

1. Observe real world behavior
2. Formulate a hypothesis
3. Test the hypothesis
4. Accept, reject, or modify the hypothesis
5. Continue to test the hypothesis. If favorable results continue the hypothesis evolves into a theory

Question 14

What is a “good” economic theory?

Answer 14

A theory that does a good job of explaining how individuals and institutions actually behave in producing, exchanging, and consuming goods/services.

Question 15

What is an economic principle?

Answer 15

A generalization about economic behavior that is true for the average person, expressed usually in tendencies of the avg. consumer, worker, or businesses.

Question 16

What is the other-things-equal assumption? (or ceteris paribus)

Answer 16

The assumption that variables other than those being considered did not change for a particular analysis.

Question 17

What are micro-economics?

Answer 17

The study of the individual consumer, worker, business firms, households, or markets that puts a a figurative microscope to groups.

Question 18

What are some examples of micro-economics?

Answer 18

Things like change in price of a specific item, the income of a household, the expenditures of a government entity or family, or the demand/supply of a particular product.

Question 19

What are macro-economics?

Answer 19

The study of the entire economy as a whole or a major aggregate of the economy. (ALL households, ALL consumers, etc)

Question 20

What are some examples of macro-economics?

Answer 20

Taking a look at economic growth, the business cycle, interest rates, inflation, and the behavior of major economic aggregates such as government, household, and business sectors. Also things like total output, total employment, total income, etc.

Question 21

What are positive economics?

Answer 21

Economic statements that are factual. They focus on cause and effect statements and avoid value judgements. Also established with scientific statements.
“what is”

Question 22

What are normative economics?

Answer 22

Economic statements that involve value judgements. Incorporates value judgements about the economy. Underlies expression of support or opposition to particular economic policies.
“what ought to be”

Question 23

What is the economizing problem?

Answer 23

The choices are necessitated because society’s economic wants for goods and services are unlimited, but the resources available to satisfy these wants are limited.

Question 24

What is a budget line?

Answer 24

A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products’ prices.

Question 25

What is opportunity cost?

Answer 25

The amount of other products or effort that must be forgone or sacrificed to produce a unit of a given product.

Question 26

What are the four resource categories?

Answer 26

Land, labor, capital, and entrepreneurial ability.

Question 27

Define land

Answer 27

Includes all natural resources used in the production process.

Question 28

Define labor

Answer 28

physical actions and mental activities that people contribute to the production

Question 29

Define capital

Answer 29

All human-produced physical objects and intangible ideas used in production (everything from intellectual property to machinery and factories)

Question 30

Define entrepreneurial ability

Answer 30

Special human resource distinct from labor

Question 31

What is the function of entrepreneurs?

Answer 31

To employ the other factors of production, take initiative, make strategic business decisions, innovate, and take risks.

Question 32

What is the production possibilities model?

Answer 32

An economic model that shows different combinations of two goods that an economy could produce.

Question 33

What is full employment?

Answer 33

Full employment is when everything in the economy is in full use assuming that resources are fixed, along with technology, and consumer/capital goods.

Question 34

What does the production possibilities curve illustrate?

Answer 34

1. Scarcity of resources is implied by the area of unattainable combinations of output outside the curve 2. Choice among outputs is reflected in the variety of attainable combinations of goods lying along the curve 3. The law of increasing opportunity costs is reflected in the bowed outrage shape of the curve

Question 35

What does fixed resources mean?

Answer 35

The quantity and quality of the factors of production are fixed.

Question 36

What does fixed technology mean?

Answer 36

The state of the methods used to produce output is constant.

Question 37

What is the law of increasing opportunity cost?

Answer 37

As more of a particular good is produced, its marginal opportunity cost increases.

Question 38

What does the production possibilities curve chart?

Answer 38

The act of giving up one thing economically, to get more of another thing. That explains the concave shape.

Question 39

What is the optimal output for production?

Answer 39

Where the marginal benefit and marginal cost intersect. (and are equal)

Question 40

What does international trade encourage?

Answer 40

Specialization at home, increased production possibilities internationally, and new possibilities and innovation.

Question 41

What does unemployment do?

Answer 41

It causes an economy to operate at a point inside its production possibilities curve.

Question 42

What causes economic growth and shifts the production possibilities curve outward?

Answer 42

Increases in resource supplies, improvements in resource quality, and technological advancements.