Important Stuff

Question 1

Association Is Causation Fallacy

Answer 1

Factor A is associated (correlated) with Factor B ——-> Factor A is a causing factor.
Alternative possibilities: Factors A and B are associated, but factor b is causing factor a; factors a and b are associated, but only by chance; factor a may be casually linked to factor b, but another factor may have a stronger impact.

Question 2

Fallacy of Composition

Answer 2

What is true for a part is automatically true for the whole

Question 3

Ignoring the secondary effects

Answer 3

Those effects which develop slowly over time–not obvious at first

Question 4

Rational self-interest

Answer 4

People generally act to further their own well-being; and they do so in a logical manner

Question 5

The “carrot” approach

Answer 5

Increase the benefits from doing the activity

Question 6

The “stick” approach

Answer 6

Increase the costs from not doing the activity

Question 7

Optimization

Answer 7

Making a well-defined measure the best that it can be

Question 8

Equilibration

Answer 8

The balancing of opposing forces such that they exactly offset each other, thus generating an unchanging outcome

Question 9

The concept of opportunity cost

Answer 9

The benefit generated by the best alternative foregone when an action is taken

Question 10

Sunk cost

Answer 10

a cost which has already been incurred and cannot be recovered no matter what decision you make today

Question 11

Specialization

Answer 11

Specialization occurs when a person concentrates on performing a single task

Question 12

Shifting the production possibilities frontier:

1) Increase/Decrease in resources

Answer 12

More land, labor, capital, entrepreneurship ability—–> greater production capability ——-> PPF shifts out

Question 13

Shifting the production possibilities frontier:

2) Increase/Decrease in technology

Answer 13

More technology —–> greater production capability ——> PPF shifts out

Question 14

Technology: the big t

Answer 14

our pool of knowledge about the industrial arts

Question 15

Economic systems

Answer 15

A collection of institutions/organizational arrangements which answer the 3 basic questions for an entire economy: w Mihat to produce, how to produce; and who gets the output?

Question 16

Libertarian

Answer 16

Public sector size: 3-10%

National Defense, police, court systems. Not much else. Property owners are decision-makers

Question 17

Conservative mixed market

Answer 17

Public sector size: 15-20%
Above plus primary, secondary education; modest welfare program; local parks, roads, street cleaning; slight to moderate support for undergraduate higher education. Property owners still major decision-makers, but govt. authorities intervene in certain markets.

Question 18

Liberal mixed market

Answer 18

Public sector size: 30-40%
Above plus greater college education spending; larger welfare system; job training programs; larger public works programs. Property owners still play dominant role, but govt. authorities can and do intervene frequently.

Question 19

Market Socialism

Answer 19

Public sector size: 30-50% (hard to say)
Similar to or larger than Liberal mixed market; but still a dominant, market oriented private sector. Explicit rejection of property rights, however as major determinant of who economic decision-makers are; instead, formation of institutions which transfer at least some decision-making powers to non-owners of property transfer control of individual firms to their workers.

Question 20

Central Planning

Answer 20

Public sector size: 50-85%
Government ownership of most basic industries. Private sector could be composed of a limited number of small/retail wholesale firms. Economic decision makers are generally government planners.

Question 21

Law of Demand

Answer 21

All else equal, the higher the price of a well-defined good or service, the lower the quantity demanded, and vice versa.

Question 22

Earnings up, demand down

Answer 22

inferior goods

Question 23

earnings up, demand up

Answer 23

normal goods

Question 24

Law of Supply

Answer 24

All else equal, the higher the price of a well-being good or service, the higher the quantity supplied and vice versa.

Question 25

The concept of derived demand

Answer 25

The demand for a resource, which is derived from the demand for the product produced by the resource.

Question 26

The concept of elasticity

Answer 26

a quantitative measure of a response; a more detailed version of the law of demand

Question 27

law of demand

Answer 27

price up, quantity demanded down

price down, quantity demanded up

Question 28

Elasticity

Answer 28

response/initial change

Question 29

lower price/higher quality/greater availability

Answer 29

more price elastic

Question 30

higher price/lower quality/lesser availability

Answer 30

more price inelastic

Question 31

higher the proportion

Answer 31

more price elastic

Question 32

lower the proportion

Answer 32

more price inelastic

Question 33

more time to respond

Answer 33

more price elastic

Question 34

less time to respond

Answer 34

more price inelastic

Question 35

luxury good

Answer 35

more price elastic

Question 36

necessity good

Answer 36

more price inelastic

Question 37

economies of scale

Answer 37

atc gets lower

Question 38

constant returns to scale

Answer 38

atc stays the same

Question 39

diseconomies of scale

Answer 39

atc gets larger

Question 40

natural monopoly

Answer 40

when entire industry output is produced at lowest cost by a single firm

Question 41

Law of Comparative Advantage

Answer 41

countries specialize in producing goods in which they have either the greatest advantage or else the least disadvantage compared to other countries.