Economics Study Guide: Basics of Economics

Question 1

What is the definition of Economics

Answer 1

The study of how people use scarce resources to satisfy their wants

Question 2

What does it mean to Economize?

Answer 2

Choose something based on the best combination of costs and benefits

Question 3

What is the second principal of Economics? What saying do economists use?

Answer 3

People’s choices involve costs. “There is no such thing as a free lunch.”

Question 4

What is the difference between real cost and opportunity cost?

Answer 4

Real Cost: The value of everything you give up, takes into account everything that would’ve been chosen

Opportunity Cost: Value of the next best thing.

Question 5

Define incentive and give an example:

Answer 5

Incentive: A benefit offered to encourage people to act in a certain way.

Example: Hire on bonus offered for joining a new workforce

Question 6

What is the best incentive for a producer?

Answer 6

High price

Question 7

What is the best incentive for a consumer?

Answer 7

Low prices

Question 8

What determines if a certain incentive will work?

Answer 8

Individuals self-interest

Question 9

Define economic system:

Answer 9

The way society uses its resources to satisfy wants

Question 10

What does “rules of the game” mean?

Answer 10

People create economic systems that influences individual choices and incentives

Question 11

How do people often respond to “rules of the game?”

Answer 11

By creating loopholes

Question 12

Why is it that people gain when allowed to trade voluntarily?

Answer 12

Because the value of anything is what the owner perceives it to be, both side anticipate gains

Question 13

Define Good

Answer 13

Thing you buy

Question 14

Service

Answer 14

Work you can buy

Question 15

Primary Effect:

Answer 15

Short term

Question 16

Secondary Effect:

Answer 16

Long term

Question 17

Rule or Law and state primary and secondary effects:

Answer 17

Prohibition. Primary effects “safer driving” “more workers” Secondary Effects “Bootlegging” “Moonshine”

Question 18

What is the basic economic problem?

Answer 18

Wants are unlimited but resources aren’t

Question 19

Scarcity

Answer 19

Lack of enough resources to satisfy wants

Question 20

First factor of production

Answer 20

Land: All natural resources on and under the Earth

Question 21

Second factor of production

Answer 21

Labor: All the time and effort that goes into production

Question 22

Third factor of production

Answer 22

Capital: All resources used to produce something

Question 23

Fourth factor of production

Answer 23

Management: Someone with the vision and energy to risk a new business

Question 24

What is value and where does it come from?

Answer 24

Measure of worth. Comes from people who determine its worth.

Question 25

What is fair trade

Answer 25

Any voluntary exchange where both traders anticipate gains

Question 26

What do both sides believe during voluntary exchange?

Answer 26

Both sides think it's an unfair trade in their favor

Question 27

Utility

Answer 27

The benefit or satisfaction from use of a good

Question 28

Marginal (Economics)

Answer 28

One more

Question 29

Law of Diminishing Marginal Utility:

Answer 29

The more you use a good, the less you enjoy it

Question 30

A person will continue using a good as long as

Answer 30

1) Benefit is at least equal to its cost 2) Utility is greater than utility of another choice

Question 31

What is the job of an economist?

Answer 31

1) study how ppl use resources

Question 32

What is the job of an economist?

Answer 32

1) study how ppl use resources 2) Interpret Data 3) Solve current economic problems

Question 33

What is macro economics and give an example:

Answer 33

study of the economy on a large scale. GDP, unemployment rate, inflation rate, balance of trade US relies on Canada and Mexico

Question 34

What is microeconomics and give an example:

Answer 34

study of specific factors in the economy. Price, cost, profit, competition

Question 35

Positive economics

Answer 35

The way things are. (fact). The sky is blue

Question 36

Normative economics

Answer 36

The way you think things should be. (All teachers should be nice)

Question 37

What is the purpose of an economic model?

Answer 37

Simplify a complex system or problem

Question 38

What is the main purpose of the PPC

Answer 38

Show scarcity on the economy

Question 39

What are four assumptions with the PPC

Answer 39

1) All resources are fixed 2) All resources are fully employed 3) Only two things can be produced 4) Technology is fixed

Question 40

What does it mean if the PPC is curved and not straight?

Answer 40

Increasing opportunity cost

Question 41

At any point not on the PPC is either

Answer 41

unattainable or inefficient

Question 42

PPC

Answer 42

Production Possibilities Curve

Question 43

Who are the worst economists?

Answer 43

Politicians