Lecture 1 + 2

Question 1

Surge Pricing

Answer 1

A pricing method in which costs are temporarily increased as a reaction to increased demand and limited supply

Question 2

The “Invisible Hand” (Adam Smith)

Answer 2

As households and firms interact in markets, they are led to desirable market outcomes by an “invisible hand”.

Government intervention hinders the ability of the “invisible hand” to coordinate the decisions of households/firms within an economy.

Question 3

Central Planning (Communism)

Answer 3

Government official (i.e. “central planners”) are in the best position to allocate the society’s scarce resources.

Question 4

Relationship Between Quantity and Marginal Benefit

Answer 4

The marginal benefit an individual/group receives from a particular good/service depends upon how many units of the good/service they already have.

Question 5

Equality

Answer 5

A state in which resources (i.e. economic prosperity) are distributed uniformly among the members of society.

Equality can be thought of as the way society divides the economic “pie” into individual slices.

Question 6

Efficiency

Answer 6

A state in which society is receiving the maximum benefits from its scarce resources.

Efficiency can be thought of as the size of the economic “pie”.

Question 7

Guns and Butter

Answer 7

The trade-off between national defense and consumer goods faced by natinal governments.

Question 8

Scarcity

Answer 8

The limited nature of society’s resources.

Because society has limited resources, it cannot produce all goods and services that all people wish to have.

Question 9

What is the purpose of ASSUMPTIONS?

Answer 9

Assumptions can simplify the complex world to make it easier to understand.

SIMPLIFICATION

Question 10

Demand Shift: Change in Income

Answer 10

An increase in income will shift the demand curve to the right (outward).
A decrease in income will shift the demand curve to the left (inward).

Question 11

Circular-Flow Diagram

Answer 11

A visual model of the economy that shows how money flows through the market (i.e. through households and firms).

Two Decision Makers: Households and Firms
Two Markets: (Goods and Services) and (Factors of Production)

Question 12

Market for Goods and Services

Answer 12

Market in which firms are the sellers and households are the buyers.

The Goods/Services Market comprises one-half of the Circular-Flow model of an economy.

Question 13

Market for Factors of Production

Answer 13

Market in which firms are the buyers and households are the sellers.

Question 14

Efficient Level of Production

Answer 14

The market is producing the most it possibly can from the scarce resources available.

Question 15

Slope of Production Possibilities Frontier

Answer 15

The opportunity cost of producing an additional unit of Good X.

Question 16

Effect on PPF: Technological Advance

Answer 16

An outward shift of the PPF curve because the economy can produce more of a good for a given quantity of labor/input.

Technological advance results in economic growth because (at certain points) more of both PPF goods can be produced.

Question 17

Microeconomics

Answer 17

The study of how households and firms make decisions (and how they interact within markets).

Question 18

Macroeconomics

Answer 18

The study of economy-wide phenomena (including inflation, unemployment, and economic growth).

Question 19

Positive Statement

Answer 19

An attempt to describe the world as it is.

DESCRIPTIVE

Positve statements can be confirmed or refuted by examining existing evidence.

Question 20

Normative Statement

Answer 20

An attempt to prescribe/describe how the world should be.

PRESCRIPTIVE

Normative statements cannot be confirmed or refuted by examining evidence/data.

Question 21

Rent Control

Answer 21

Controls adversely impact the quantity/quality of housing and are costly strategies (for helping the neediest in society).

Question 22

Demand

Answer 22

Displays the effect of a good’s price on the quantity of the good consumers want to purchase (for a given level of income).