Intro to Econ

Question 1

What is one commonality between the models, pareto efficiency and Kaldor-Hicks efficiency?

Answer 1

They are all hypothetical. The models display what could/will happen in an ideal scenario and the efficiencies look at IF THERE IS A POSSIBILITY of change

Question 2

What are the different factor payments?

Answer 2

Land receives rent, Labor receives wages, Capital receives interest, and Entrepreneurship receives profit

Question 3

What is a factor payment?

Answer 3

A factor payment is what a person receives when they provide a certain factor of production

Question 4

How is money distributed through the economy (based on the circular flow diagram)?

Answer 4

Households provides money to the goods market in exchange for goods and services in the form of expenditures (consumptions). The goods market then provides the firms money in the form of revenue in exchange for the goods and services. The firms give money to the factor market in the form of a factor payment in exchange for the factors of production, and then the factor market gives that factor payment to the household in exchange for their factors of production.

Question 5

How are goods and services moved through the economy (based on the Circular Flow Diagram)?

Answer 5

The Factors of Production are moved from the Household to the Factor Market and the to the Firms. From there, the firms use those factors of productions to provide goods and services to the goods market. The goods and services are then moved from the goods market to household

Question 6

What are the four factors that make up the Circular Flow Diagram?

Answer 6

Households, Firms, Goods Market, and Factor Market

Question 7

What is the Circular Flow Diagram?

Answer 7

A general display of how goods, services, and money move through the economy

Question 8

How can the Production Possibilities Frontier be used to display growth/changes to the scenario?

Answer 8

If a third variable is added to the scenario, the PPF will shift either to the left (in) or the right (out) to display any positive or negative changes to the feasibility of the scenario.

Question 9

Are Production Possibilities Frontiers more accurate with a curved line?

Answer 9

Technically yes, but the difference between a curved and linear line are miniscule enough that a linear line is just as credible. The linear line is also easier to work with as it only uses simple algebra while the curved line requires the use of calculus.

Question 10

Why are Production Possibilities Frontiers sometimes seen with curved lines?

Answer 10

A curved line provides a more accurate depiction of trade-offs so you can best use your resources

Question 11

What are some things that can be determined with a Production Possibilities Frontier?

Answer 11

If something is feasible with the current resource, if something is efficient, any trade-offs that can be made along with their opportunity cost

Question 12

What part of the graph is the Production Possibilities Frontier?

Answer 12

If we are being specific, the Production Possibilities Frontier is the line that is displayed on the graph

Question 13

What does PPF stand for and what is it?

Answer 13

PPF stand for Production Possibilities Frontier and it is a commonly used model that is used to see how feasible certain actions are and to compare them to one another. It is usually categorized with a straight linear line but can also be seen with a curved line.

Question 14

What is empirical work used for?

Answer 14

Empirical work is used to determine how accurate a model is and if the decisions made from it actually work in real life.

Question 15

What is one key assumption that is made when using models and what is it referred to as?

Answer 15

When using models, it is key to assume that anything not explicitly displayed in the model remains constant (even if it doesn’t naturally). This is referred to as “other things equal” or “ceteris parabus”

Question 16

How is theoretical work used?

Answer 16

Theoretical work utilizes models, which are general displays of the economy to help them focus on a specific aspect and how certain decisions may affect it.

Question 17

What are the two ways economists go about studying something?

Answer 17

Economists can perform studies through theoretical work (models) or empirical work (data collection and analysis)

Question 18

In the terms of the factors of production, what is referred to when we mention “capital?”

Answer 18

Capital refers to the tools, technology, and equipment that is used to create a good or service.

Question 19

What is the definition of “The Factors of Production?’

Answer 19

The factors of productions are the things put in to create an economics output

Question 20

What are the factors of production

Answer 20

Land, labor, capital, entrepreneurship

Question 21

What are some examples of things that use positive economics?

Answer 21

GDP calculations, revenue predictions, effects to revenue if the price is changed, etc.

Question 22

What are some examples of things that involve normative economics?

Answer 22

The optimal tax rate (people are always going to believe that it should be lower, even if it is just for them), the price of a license (the public will want it cheap but the organization will want it more expensive), etc.

Question 23

What is normative economics?

Answer 23

Normative economics is the opinion-based belief of what SHOULD be done for the economy. The answer to normative-based questions will change from person to person.

Question 24

What is Positive economics?

Answer 24

Positive economics is a fact-based study of what is actually occurring in the economy. It can only be disputed if they results are proven inaccurate

Question 25

What is Kaldor-Hicks improvement?

Answer 25

When you can make a change to a scenario to make it Kaldor-Hicks efficient

Question 25

What is Equity and do economist care about it?

Answer 25

Equity is defined as concepts of fairness and economists, traditionally, don't bother with equity

Question 26

What is Pareto improvement?

Answer 26

Pareto improvement is when you can make a costless change to a scenario

Question 27

What is Kaldor-Hicks efficiency?

Answer 27

Kaldor-Hicks efficiency is where you change a situation where one group (Group A) to be better off. Then, Group A will compensate the group worse off (Group B) while still remaining better off. If there is no way you can successfully make an improvement like this, the scenario is considered Kaldor-Hicks efficient

Question 28

Is Pareto efficiency always useful? If no, what can we use instead?

Answer 28

Pareto efficiency is not always efficient because it requires NO ONE to be made worse, which does not happen that often. Instead, we can use Kaldor-Hicks efficiency

Question 29

With pareto efficiency, what is considered "worse off"?

Answer 29

Something is considered worse off if the person has less than they started. Even if it is something miniscule like have 2 muffins when you originally had 4.

Question 30

What is pareto efficiency?

Answer 30

Pareto efficiency is determined by whether or not you can make a costless change that doesn't put ANYONE worse off than they were. If a company cannot make any costless changes, they are pareto efficient. If they can, they are deemed pareto inefficient

Question 31

What is allocative efficiency?

Answer 31

Allocative efficiency is where a certain product is distributed to those who will genuinely appreciate and enjoy the item such as placing Packers merchandise in Green Bay opposed to Chicago

Question 32

If a company's prices are high, does that automatically mean that are not productive efficient?

Answer 32

No. In some cases, the only known materials to make a certain product are extremely expensive and requires high prices so a company doesn't go bankrupt

Question 33

What are some reason why a company may not be productive efficient?

Answer 33

The company may not be meeting their sales quota or may not be popular enough to warrant low prices

Question 34

What is productive efficiency?

Answer 34

Productive efficiency is where you produce a good or service at the lowest cost possible

Question 35

What are the four types of efficiencies economists look for?

Answer 35

Productive efficiency, Allocative efficient, Pareto efficiency, Kaldor-Hicks efficiency

Question 36

Along with a balanced economy, what type of economy do economists desire?

Answer 36

Economists desire an efficient economy

Question 37

In the terms of economics, when is an economy considered efficient?

Answer 37

An economy is deemed efficient when we can do as much as possible with as little as possible

Question 38

What are some things that are looked at with microeconomics?

Answer 38

Opportunity costs, why people/corporations made certain decisions over others, how well an individual market did, etc.

Question 39

What is the definition of microeconomics?

Answer 39

Microeconomics focuses of the economic decisions, trends, and issues of the individual factors that make up macroeconomics like the individual, household, or business

Question 40

What are some things that are looked at in macroeconomics?

Answer 40

Exports, GDP, income, employment, etc.

Question 41

What is the definition of macroeconomics?

Answer 41

The study of economic decisions, trends, and issues on a broader, "national" level scale

Question 42

What are the two branches of economics?

Answer 42

Microeconomics and Macroeconomics

Question 43

What is a simplified definition of economics?

Answer 43

The study of how people maximize their happiness when they have limited resources

Question 44

What is an opportunity cost?

Answer 44

The second best option you give up for the sake of the best

Question 45

What is a trade-off and why are they used?

Answer 45

A trade-off is where you give up one thing for the sake of the other. It is utilized to be as efficient as possible with the scarce resources available

Question 46

What are some examples of common limited resources?

Answer 46

Time, money, natural resources, etc.

Question 47

Based on the definition, what is meant by "constraints?"

Answer 47

Constraints are the things that prevent us from doing everything we want due to scarce (limited) resources

Question 48

What is the traditional definition of utility and why don't economists care about it?

Answer 48

The traditional definition of utility is "usefulness." Economists don't care about this because not everything that creates happiness is useful.

Question 49

In the terms of economics, what is the meaning of utility?

Answer 49

Happiness or content

Question 50

What are some of the most common economic agents?

Answer 50

Individuals, households, businesses, government, etc.

Question 51

What is the meaning of economic agents in the definition?

Answer 51

. A person or group of people that makes an economic decision like what to buy or sell

Question 52

What is the official definition of "Economics"?

Answer 52

The study of how economic agents maximize their utility given their constraints

Question 53

What is the major inaccuracy involving the Circular Flow Diagram?

Answer 53

The Circular Flow Diagram doesn't show the money that is taken out or added to the economy through the banks, government, and imports/exports

Question 54

How is the slope useful for the Production Possibilities Frontier?

Answer 54

On the Production Possibilities Frontier, the slope is used to display the opportunity cost. If the slope is constant, it signifies a linear line and that the resources are equally distributed in the economy. If the slope increases, it signifies a curved line with higher opportunity costs because of the resources being unequally distributed in the economy.