Intro to Econ: Part 1

Question 1

Scarcity

Answer 1

limited resources compared to societies never-ending desires. Ex. We might want more hours in the day to sleep because of exams this week but that isn’t an option. Time is the scarce resource.

-Different from scarcity and shortages

Question 2

Opportunity Cost

Answer 2

Every time you make a decision there is an opportunity cost. If you choose to eat a burger instead of chips, the opportunity cost you’re not eating the chips. The next best alternative.

Question 3

Incentives

Answer 3

• a thing that motivates or encourages one to do something.
• Economics believes that people are motivated by reasonable incentives- make us act in a certain way, for laws of economics to function.

Question 4

marginal cost

Answer 4

the cost added by producing one extra item of a product.

Question 5

marginal benefit.

Answer 5

is the additional satisfaction or utility that a person receives from consuming an additional unit of a good or service. A person’s marginal benefit is the maximum amount he is willing to pay to consume that additional unit of a good or service.

Question 6

What does ceteris paribus mean and why do economists use it?

Answer 6

• All things stay constant.

- Use it to simplify economic scenarios to find solutions.

Question 7

Factors of Production: (Example of each one)

Answer 7

• Land-Fertile soil for planting, animals, crops, natural resources, etc.
• Labor-Workers.
• Capital-Man-made means of production. Ex- machinery, buildings
• Entrepreneurship- economic resources can exist in an economy and not be transformed into consumer goods. Entrepreneurs usually have an idea for creating a valuable good or service and assume the risk involved with transforming economic resources into consumer products.

Question 8

Microeconomics

Answer 8

Small-scale study of the economy. Ex. Household spending.

Question 9

Macroeconomics

Answer 9

Large-scale study of the economy. Ex. Gvt. spending.

Question 10

Production Possibility Curve

Answer 10

It shows the maximum possible amount of goods/services company/government can produce. Typically, we use the “guns or butter” idea. Should we spend more money on the military or on consumer goods?

Question 11

Efficiency on PPC

Answer 11

-ANy point inside the ppc is being efficient, using resources best they can. -Point inside line- inefficiency, could produce more goods-point outside line- unattainable with the resources available at that time.

Question 12

Opportunity Cost of PPC

Answer 12

What you give up to produce the other good on the ppcif you can produce 10 cookies and 0 pizza’s, what are you giving up to make one pizza? Answer is you have to give up cookies.

Question 13

Factors that move the PPC

Answer 13

-Change in Product Quality or Quantity-Change in trade-Change in technology

Question 14

Utility

Answer 14

satisfaction. Business / people make rational decision to maximize their utility

Question 15

Law of diminishing marginal utility

Answer 15

as a person increases consumption of a product while keeping consumption of other products constant, there is a decline in the marginal utility that person derives from consuming each additional unit of that product.

Question 16

Circular flow model

Answer 16

economic model depicting how money flows through the economy. -households and firms. -Money flows to workers in the form of wages, and money flows back to firms in exchange for products.

Question 17

Ceteris Paribus

Answer 17

• ‘all other things remaining constant.’ -important in economics because in the real world, it is usually hard to isolate all the different variables that may influence or change the outcome of what you are studying.-used when making arguments about cause and effect.

Question 18

absolute advantage

Answer 18

-The producer that can make the most of a product with the resources they have

Question 19

comparative advantage

Answer 19

-the produce that has the lowest per unit opportunity cost-if they have comparative advantage, they should produce that product over the other producer.

Question 20

per unit opportunity cost

Answer 20

-used to figure out comparative advantage-the opportunity cost divided by units gained

Question 21

Allocate

Answer 21

Distribute

Question 22

Economic Systems

Answer 22

method used by a society to produce and distribute goods and services. The way these questions are answered determines the economic system

Question 23

3 economic questions every society needs to answer

Answer 23

1. What goods and services should be produced?
2. How should these goods and services be produced?
3. Who consumes these goods and services?

Question 24

Command Economies

Answer 24

Government answers all three questions

• Benefit: always have jobs, government employed
• Prices:not guided by price of profit, instead the GOVERNMENT determined on QUANTITATIVE MEASUREMENTS
• Negative: shortage oflow and oldqualitiy goods, produced at the highest prices and the lowest quality

Question 25

Traditional Economies

Answer 25

produce products and services that are a direct result of their beliefs, customs, traditions, religions

• Benefit: Minimal watse, traditions kept, greener
• Negative: never have surplus of goods

Question 26

Free Market Economy

Answer 26

Organizations run by the people determine how the economy runs, how supply is generated, what demands are necessary, etc. There is no government intervention, and no true free market today

• the “invisible hand” that will regulate economy without need of the government.
• Most efficient production of the goods that consumers want, produced at the lowest prices and the highest quality

Question 27

Mixed Economy

Answer 27

mixture of command and free economies

-As long as the businesse follow rules set by the government, they are free to do whatever they want

Advantage: key areas are run by government to maintain healthy economy

Disadvanatges: political debates about how much intervention is good