L1: introduction to economics + the ten principles of economics

Question 1

what is the origin of the term “economics”

Answer 1

Greek word “Oikonomia” which means
household management

Question 2

economics is the study of?

Answer 2

study of how society manages its scarce resources

Question 3

definition of economics?

Answer 3

how individuals within a society generally make choices that involve the use of scarce resources from among alternative wants that need to be satisfied

Question 4

how does household management relate to economics?

Answer 4

• they are both dealing with making many decisions on how to;
• allocate/manage limited resource among its members

Question 5

define scarcity

Answer 5

• the limited nature(/shortage) of society’s resource

Question 6

An economic condition wherein there is no enough
resources to satisfy all the demands of the people

Answer 6

scarcity

Question 7

give examples of shortage

Answer 7

• e.g. shortage of water on aftrica
• e.g. shirtage of alcohol/face masks/face sheild/vaccine/etc. nung pandemic
• e.g. oil (due to russia vs ukraine)/
• e.g. bigas, sibuyas, etc.

Question 8

enumerate the Importance of Studying Economics

Answer 8

1. Economics affects daily life
2. Economics helps render more informed decisions
3. Makes us more effective citizens

(economics helps us understand because we understand why inflation is high, why there are shortages, why there is so much unemployment etc.)

Question 9

enumerate the branches of economics
(and differentiate them briefly)

Answer 9

1. microeconomics
   - internal
   - households
   - individuals
2. macroeconomics
   - external
   - society
   - as a whole

Question 10

how households and individuals spend their budgets

Answer 10

microeconomics

Question 11

determines the level of economic activity in a society

Answer 11

macroeconomics

Question 12

it concerns the internal issues of a country

Answer 12

microeconomics

Question 13

it considers the external issues (larger scale)

Answer 13

macroeconomics

Question 14

examples of this are:
- personal consumption
- personal budgeting

Answer 14

microeconomics

Question 15

examples of this are:
- gross domestic product
- inflation
- unemployment

Answer 15

macroeconomics

Question 16

fill in the blanks and answer who stated it:

“one produces a good or service is _____________ into a number of tasks that ________________________________, instead of all the tasks being ________________________.”

Answer 16

Division and Specialization of Labor (Adam Smith’s Wealth of Nations)

“one produces a good or service is divided into a number of tasks that different workers perform, instead of all the tasks being done by the same person.”

Question 17

DIVISIONS OF ECONOMICS

Answer 17

“Every individual endeavors to employ his capital so that its produce may be of greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And he is in this led by the invisible hand to promote an end which was no part of his intention. By pursuing his own interest, he frequently promotes that of society more effectually than when he really intends to prove it”

• Adam Smith (The Wealth of Nations)

Question 18

enumerate the economic systems
(and differentiate them briefly)

Answer 18

1. Traditional economy
   - agriculture
   - unchanging
2. Command economy
   - centralized governance
   - the government owns everything
3. Market economy
   - decentralized
   - private individuals owns resources, etc.

Question 19

economic decisions are passed down from government authority and where the government
owns the resources.

Answer 19

command economy

Question 20

an economy where economic decisions are decentralized, private individuals own resources, and businesses supply goods and services based on demand.

Answer 20

market economy

Question 21

an economic system that’s a good way to organize the economy and economic activities and also promotes economic wellbeing

Answer 21

market economy

Question 22

typically an agricultural economy where things are done the same as they have always been done.

Answer 22

traditional economy

Question 23

the government owns all properties and resources

Answer 23

command economy

Question 24

an economic system that still uses barter and trade

Answer 24

traditional economy

Question 25

north korea

Answer 25

command economy

Question 26

usa

Answer 26

market economy

Question 27

canada

Answer 27

traditional economy

Question 28

what economic system does our country have?

Answer 28

mixed economy - traditional + market economy

Question 29

enumerate the two kinds of decision-makers and define them

Answer 29

1. Firms - the ones that produce goods and services using inputs, such as the factors of production: > Labor > Capital > Land 2. Household - the ones who own the factors of production and consume all the goods and services that firms produce

Question 30

refers to a visual model of the economy that shows how money flows through markets among households and firm

Answer 30

Circular Flow of Economy Model

Question 31

enumerate the Two Types of Markets and define them

Answer 31

1. Markets for goods and services - households are buyers and firms are sellers; households buy the output of goods and services that firms produce 2. Markets for the factors of production - households are sellers and firms are buyers; household provide firms the inputs that the firms use to produce goods and services - input such as labor

Question 32

what are the 10 principles of economics?

Answer 32

PTRPTMGAPS PRINCIPLE 1: People Face Tradeoffs. PRINCIPLE 2: The Cost of Something Is What You Give Up to Get It. PRINCIPLE 3: Rational People Think at the Margin PRINCIPLE 4: People Respond to Incentives PRINCIPLE 5: Trade Can Make Everyone Better Off PRINCIPLE 6: Markets Are Usually A Good Way to Organize Economic Activity PRINCIPLE 7: Governments Can Sometimes Improve Market Outcomes PRINCIPLE 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods & Services PRINCIPLE 9: Prices Rise When the Government Prints Too Much Money PRINCIPLE 10: Society Faces a Short-run Tradeoff Between Inflation and Unemployment

Question 33

who created the 10 principles of economics?

Answer 33

Nicholas Gregory Mankiw

Question 34

- The value of the good or service foregone. - The value of the next best choice that you give up when you make an economic/rational decision.

Answer 34

under principle 2: OPPORTUNITY COST

Question 35

- Costs that we make in the past that we cannot recover.

Answer 35

under principle 2: SUNK COST

Question 36

who systematically and purposefully do the best they can to achieve their objectives given the available opportunities.

Answer 36

under principle 3: RATIONAL PEOPLE

Question 37

small incremental adjustments to a plan of action.

Answer 37

under principle 3: MARGINAL CHANGES

Question 38

something that induces a person to act, i.e. the prospect of a reward or punishment.

Answer 38

under principle 4: INCENTIVE

Question 39

a group of buyers and sellers (need not be in a single location)

Answer 39

under principle 6: MARKET

Question 40

allocates resources through the decentralized decisions of many households and firms as they interact in markets.

Answer 40

under principle 6: MARKET ECONOMY

Question 41

- This means that we all have the freedom to buy the properties that we want, products/services that we need, and firms has right to produce, etc. - People have met their basic survival need and have enough/sufficient income to prosper

Answer 41

economic well-being

Question 42

- llustrates the hidden economic factors that affect/guide the buying behavior of the consumers(households) and the activities of sellers/firms/etc. - eg. price, quality, credibility, quantity, self-interest(base on the benefits that they will get in the product),

Answer 42

under principle 6: THE INVISIBLE HAND

Question 43

- the amount of goods and services produced per unit of labor. - depends on the equipment, skills, and technology available to workers.

Answer 43

under principle 8: PRODUCTIVITY

Question 44

increases in the general level of prices.

Answer 44

under principle 9: INFLATION

Question 45

Examples: Going to a party the night before your midterm leaves less time for studying. Having more money to buy stuff requires working longer hours, which leaves less time for leisure. Protecting the environment requires resources that could otherwise

Answer 45

PRINCIPLE 1: People Face Tradeoffs.

Question 46

Making decisions requires comparing the costs and benefits of alternative choices. The opportunity cost of any item is whatever must be given up to obtain it. It is the relevant cost for decision making.

Answer 46

PRINCIPLE 2: The Cost of Something Is What You Give Up to Get It.

Question 47

Examples: The opportunity cost of… …going to college for a year is not just the tuition, books, and fees, but also the foregone wages. …seeing a movie is not just the price of the ticket, but the value of the time you spend in the theater.

Answer 47

PRINCIPLE 2: The Cost of Something Is What You Give Up to Get It.

Question 48

systematically and purposefully do the best they can to achieve their objectives. make decisions by evaluating costs and benefits of marginal changes, incremental adjustments to an existing plan.

Answer 48

PRINCIPLE 3: Rational People Think at the Margin

Question 49

Examples: When a student considers whether to go to college for an additional year, he compares the fees & foregone wages to the extra income he could earn with the extra year of education. When a manager considers whether to increase output, she compares the cost of the needed labor and materials to the extra revenue.

Answer 49

PRINCIPLE 3: Rational People Think at the Margin

Question 50

Examples: When gas prices rise, consumers buy more hybrid cars and fewer gas guzzling SUVs. When cigarette taxes increase, teen smoking falls.

Answer 50

PRINCIPLE 4: People Respond to Incentives

Question 51

Rather than being self-sufficient, people can specialize in producing one good or service and exchange it for other goods. Countries also benefit from trade and specialization: - Get a better price abroad for goods they produce - Buy other goods more cheaply from abroad than could be produced at home

Answer 51

PRINCIPLE 5 Trade Can Make Everyone Better Off

Question 52

“Organize economic activity” means determining what goods to produce, how to produce them, how much of each to produce, who gets them

Answer 52

PRINCIPLE 6: Markets Are Usually A Good Way to Organize Economic Activity

Question 53

Famous insight by Adam Smith in The Wealth of Nations (1776): Each of these households and firms acts as if “led by an invisible hand” to promote general economic well-being.

Answer 53

PRINCIPLE 6: Markets Are Usually A Good Way to Organize Economic Activity

Question 54

The invisible hand works through the price system: The interaction of buyers and sellers determines prices. Each price reflects the good’s value to buyers and the cost of producing the good. Prices guide self-interested households and firms to make decisions that, in many cases, maximize society’s economic well-being.

Answer 54

PRINCIPLE 6: Markets Are Usually A Good Way to Organize Economic Activity

Question 55

“There ain’t no such thing as a free lunch.” To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another.

Answer 55

PRINCIPLE 1: People Face Tradeoffs.

Question 56

Important role for govt: enforce property rights (with police, courts) People are less inclined to work, produce, invest, or purchase if large risk of their property being stolen.

Answer 56

PRINCIPLE 7: Governments Can Sometimes Improve Market Outcomes

Question 57

Govt may alter market outcome to promote equity. If the market’s distribution of economic well-being is not desirable, tax or welfare policies can change how the economic “pie” is divided.

Answer 57

PRINCIPLE 7: Governments Can Sometimes Improve Market Outcomes

Question 58

Huge variation in living standards across countries and over time: Average income in rich countries is more than ten times average income in poor countries. The U.S. standard of living today is about eight times larger than 100 years ago.

Answer 58

PRINCIPLE 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods & Services

Question 59

The most important determinant of living standards: productivity, the amount of goods and services produced per unit of labor. Productivity depends on the equipment, skills, and technology available to workers. Other factors (e.g., labor unions, competition from abroad) have far less impact on living standards.

Answer 59

PRINCIPLE 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods & Services

Question 60

Inflation: increases in the general level of prices. In the long run, inflation is almost always caused by excessive growth in the quantity of money, which causes the value of money to fall. The faster the govt creates money, the greater the inflation rate.

Answer 60

PRINCIPLE 9: Prices Rise When the Government Prints Too Much Money

Question 61

In the short-run (1–2 years), many economic policies push inflation and unemployment in opposite directions. Other factors can make this tradeoff more or less favorable, but the tradeoff is always present.

Answer 61

PRINCIPLE 10: Society Faces a Short-run Tradeoff Between Inflation and Unemployment

Question 62

the cost of any action is measured in terms of?

Answer 62

foregone opportunities

Question 63

rational people make decisions by?

Answer 63

comparing marginal costs and marginal benefit

Question 64

it is is the ultimate source of living standards?

Answer 64

productivity

Question 65

it is the ultimate source of inflation?

Answer 65

money growth

Question 66

what are the two roles of the government?

Answer 66

1. alter market outcome to promote equity 2. can change how the economic “pie” is divided.

Question 67

enumerate the principles of decision making

Answer 67

(principle 1-4)

Question 68

enumerate the principles of interactions among people

Answer 68

(principle 5-7)

Question 69

enumerate the principles of the economy as a whole

Answer 69

(principle 8-10)