Fundamentals

Question 1

What are the two types of economics?

Answer 1

Macroeconomics

Microeconomics

Question 2

Macroeconomics (Aggregate)

Answer 2

Looking at the state/country/global level where disasters/wars/pandemics can drastically have a toll on the economy
Ex: inflation or unemployment

Question 3

Microeconomics

Opposite of macro

Answer 3

Smaller scale level (1-2) - individuals or markets affected by the weather or government regulation
Ex: gasoline

Question 4

What are resources?

Relation to economics

Answer 4

Inputs that produce the goods and services

Also known as factors of production

Question 5

What are the 4 categories of resources?

Answer 5

1) Land - natural resources
2) Labor - physical/mental activity
3) Capital - physical/human
4) Entrepreneurial ability - Land + Labor + Capital –> produce goods and services

Question 6

What makes entrepreneurial ability different from capital?

Answer 6

Different from human capital (knowledge and skills that increase productivity) where one involves assumed risks and organizes resources in a productive process

Question 7

Scarcity

Answer 7

Inability of limited resources to satisfy unlimited wants

Ex: farmland (food production) or give up for a car factory

Question 8

Opportunity Cost (OC)
"To see the unseen" (Frederic Bastiat)

Answer 8

Activity or opportunity one gave up for another (loss of time)
Value of the next best forgone alternative

Question 9

How does opportunity cost relate to economics?

Answer 9

Individuals will want to make choices to maximize well-being or happiness in regard to not having enough resources or time

Question 10

Rational Decision Making (key to economics)

Answer 10

1) Self Interest - do things that interest them
2) Marginal Decision Making - making choices in increments by evaluating benefits and costs
3) Optimization - make choices that maximize the overall benefit

Question 11

Marginal Benefit (MB)

Answer 11

Additional benefit with more than one unit of activity

Question 12

Marginal Cost (MC)

Answer 12

Additional cost with more than one unit of activity

Question 13

Optimization
A) MB >= MC
B) MB < MC

Answer 13

A) Do it
B) Don’t do it

If there are less benefits, zero engagement compared to if more (+) people will engage
Ex: Budget constraint (influence)

Question 14

Change in Total Benefit/Change in Quantity

Answer 14

Calculation for MB and MC

Question 15

Optimal Level of Output

Similar concept when applying it to demand and supply

Answer 15

MB = MC

last unit of MB produced/consumed = MC of that unit

Question 16

Production Possibilities Schedule

Answer 16

A table that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology

Question 17

Production Possibilities Frontier (PPF)

Answer 17

Graph to show the relationships between goods/services produced by fixed resources and technology
*Can show which production combos that are attainable and efficient

Question 18

Does the opportunity cost change when PPF is a straight line?

Answer 18

No, the OC stays constant at every level of production

Question 19

Describe what PPF means on the graph:

1) Falls on the PPF line
2) Falls (interior) left of PPF
3) Falls (exterior) right of PPF

Answer 19

1) possible/efficient
2) possible but inefficient
3) impossible with current resources and technology

Question 20

Comparative Advantage 
(Critical in the world of scarcity - coined by David Ricardo)

Answer 20

Ability to produce a good or service at a lower relative opportunity cost than that of another producer
*Doesn’t mean one produces more goods

Question 21

1) What would it mean if a producer had a comparative advantage?
2) Why would comparative advantage not work?

Answer 21

1) lower OC that they should specialize in the goods and to attain their other good (beans and corn) they would trade to be able to reach outside the PPF
2) Between X and Y (beans and corn) one cannot have a comparative advantage in both goods, then that would mean the OC are the same for both producers

Question 22

Specialization

Answer 22

The practice of using available resources to produce a single good or service rather than multiple goods and services

Question 23

1) Why would specialization help a worker?

2) How would specialization have a disadvantage?

Answer 23

1) Increases the productivity, more input = more goods produce and living standard rises
2) Can cause individuals and nations to become interdependent, will have to trade for goods they don’t want to produce

Question 24

Terms of Trade

Answer 24

The price of one good, service, or resource in terms of another
- right cost at the OC between consumer and seller
Ex: too high, buyers won’t buy. too low, sellers won’t sell

Question 25

Gains from Trade

Answer 25

The benefit or wealth that accrues to a buyer or seller as a result of trading one good, service, or resource for another
*($$$$) don’t equal wealth

Question 26

Laws of Increasing Opportunity Costs

Answer 26

As production of a good increases, the OC of each additional unit rises
-as OC increases, the output increases

Question 27

According to the law of increasing opportunity cost:
A) PPF is straight
B) PFF is curved (bowed)

Answer 27

A) The 2 units are identical - OC is assumed to be constant (in terms of micro - individual)
B) Different resources with different OCs (not constant) - in terms of macro

Question 28

Circular Flow Model (dynamics of the economy)

Answer 28

model that describes how goods, services, resources and money flow back and forth in an economy