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Macro economics > Macro: test 1 > Flashcards

Macro: test 1 Flashcards

1
Q

economics is?

A

the study of efficient decisions

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2
Q

efficient decisions involve?

A

choosing the most valuable alternative

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3
Q

revealed preference?

A

principle that our choices reveals values

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4
Q

what are the characteristics of value?

A

value depends on the situation, different for different people, and subsequent units of the same good have less value

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5
Q

optimal arrangement principle:

A

allocating various uses, first choose the best then second best and so on

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6
Q

measure value of something to individual

A

will to sacrifice to obtain, or if owned, the least willing to accept to give that something up

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7
Q

why do subsequent units of something have less value?

A

the optimal arrangement principle and many appetites get more satisfied as more is consumed

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8
Q

how do economists find value of clean air?

A

by studying prices of similar houses in neighborhoods with varying pollution

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9
Q

how does one find probabilistic value of an individual life to that individual?

A

finding how much a worker will accept to take a more dangerous job
look at multiple, particular jobs, look mostly at free market– multiple payers

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10
Q

cost is:

A

value of the best alternative that is sacrificed to obtain something

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11
Q

no free lunch:

A

any decision has at least 2 alternatives so any decision involves cost

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12
Q

macroeconomics:

A

the study of entire economies, using concepts like total output, the unemployment rate, the national debt, and total investment

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13
Q

scarcity:

A

we would like to have something but done have the money, having many more wants, root of making decisions

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14
Q

shortage:

A

willing to pay but not enough

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15
Q

marginal value is defined as:

A

value of the individual unit of the something

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16
Q

is a good could be consumed at zero marginal cost to a consumer, how much of the good would be consumed

A

can only consume until the mv is zero

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17
Q

how are decisions made using marginal analysis?

A

take an action if and only if the marginal value is at least as great as marginal cost

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18
Q

why does marginal cost slope upward in production?

A

law of diminishing returns. also applying the optimal arrangement principle to the owners time

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19
Q

are jobs costs or benefits to society?

A

labor is a resource. it has cost (the wage) and gives benefits (extra production)

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20
Q

demand is defined as:

A

relationship between the possible prices of something and quantities people willing to buy, other things equal

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21
Q

diminishing return:

A

add workers to production, production becomes less

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22
Q

supply is defined as:

A

relationship of possible prices and quantities people/firms willing to sell, other things equal

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23
Q

if we know the marginal cost of producing a good, how much of the good will firm supply?

A

firm will supply all units which have cost less than or equal to the price

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24
Q

supply slopes upward because of:

A

low of diminishing returns and optimal arrangement principle, applied to owners time

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25
Q

demand slopes downward because:

A

marginal value of good falls as more is consumed

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26
Q

a shortage in the market can only be caused by?

A

price is lower than equilibrium price

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27
Q

friedman said that if you spend someone else money on yourself:

A

you don’t economize but get the best value

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28
Q

friedman - on someone else and someone else money:

A

you don’t economize and you don’t know their highest value

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29
Q

what are the functions of market price?

A

ration foods to consumers that most value them, give incentives to producers who satisfy consumers, give incentives to producers and consumers to conserve scarce resources, transmit info about value and scarcity throughout the economy

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30
Q

what are some examples of what the state must know to manage the economy as well as free market?

A

the state would have to know everyones preference, the scarcity of all resources, the most efficient way to produce each good at current prices, and the best ways to adjust if something changes

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31
Q

what is the calculation problem?

A

the state cannot posses and integrate all info needed to operate as efficiently as individuals do in markets

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32
Q

what did Hayek believe about economic planning?

A

there is no dispute about whether planning should be done or not. whether planning should be done centrally (by one authority for the whole economic system), or divided among many individuals

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33
Q

what is spontaneous order?

A

individuals organize themselves and interact efficiently if they have freedom to do so

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34
Q

market advantages over single decision makers are:

A

freedom is preferred by most. markets use the ingenuity of millions. markets have millions of low risk experiments. firms compete to serve others. firms compete to use resources efficiently.

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35
Q

what advantages does the state have over markets?

A

the state can use force to produce some goods which markets cannot produce, because they cannot be individually sold and consumed – like national defense

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36
Q

what natural experiments have been done on state control of markets?

A

Korea and Germany

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37
Q

what is a noteworthy result shown by the index of economic freedom?

A

more free countries tend to have higher average incomes

38
Q

what contradiction did Bastiat point out about authoritarian rulers who reorder economic activity?

A

if it is not safe to let people choose freely, how can to authoritarians choose well, since they are people too

39
Q

what does public choice school study?

A

how self interested gov. employees make decisions

40
Q

what did hayek call “the curious task of economics”?

A

to demonstrate how little they really know about what they image they can design

41
Q

what are the material costs and benefits of informed voting?

A

benefits: minute probability that of changing the election
cost: time and money spent to educate ones self, register, and vote

42
Q

what is rational ignorance?

A

refusing to expend resources to gather info that will almost certainly not lead to change in quality of life

43
Q

why do old people vote?

A

they have low time costs

44
Q

what are the alternatives to individual choice?

A

authoritarian - dictator, by elected reps, or by voting in general

45
Q

how does Bastiat describe the costs and benefits of interest groups?

A

someone gets a value of 10 by imposing a cost of 15, split among 30 others the cost is spread so thinly that it is not in any individuals interest to rebel, but it harms society overall

46
Q

t/f: successful interest groups must be large

A

false, small interest groups are successful because gains are concentrated to a few individuals

47
Q

social security has succeeded as special interest group because:

A

old people who draw benefits vote. people who are nearly old enough to draw benefits vote. many view the program as a retirement program, contrary to its structure and legal status

48
Q

t/f: regulation firms need only produce in a different way not in a less profitable way than unregulated firms?

A

unregulated firms produce in the most profitable way. hence a regulation that changes this must lower profits.

49
Q

what are the categories of the cost of regulation?

A

gov. administrative cost
business comp. cost
business indirect cost

50
Q

what are the indirect costs of regulation?

A

value of the output not produced due to regular wasteful activities to avoid regulation, to hire lobbyists, or take advantage of otherwise inefficient loopholes

51
Q

what are the regulatory comp. costs:

A

how much must be sacrificed by the reg. entity to follow the law which includes reporting costs, planning, and administration cost, and consulting

52
Q

what are two reasons auto companies build fuel efficient cars?

A
  1. some people like fuel efficient cars

2. CAFE standards

53
Q

t/f: free markets create jobs and never destroy them:

A

free markets create and destroy jobs. always increasing value of goods and services that labor produces

54
Q

t/f: the chief backers of ethanol use are environmentalists?

A

false, corn growers and politicians. they pay and are chief backers. few environmentalists support ethanol

55
Q

what percentage of corn crop is used to produce ethanol?

A

33-50% depending on the harvest.

33% being a big harvest and 50% being a small harvest

56
Q

adam smith- wealth of a country:

A

not in gold and silver but in lands, housing, and consumable goods of different kinds

57
Q

t/f: to be wealthy, we must first put our efforts toward consumption?

A

before we can consume, we must create value

58
Q

in what way is value created?

A

production and trade

59
Q

the production process:

A

turns inputs into consumable outputs

60
Q

what are the categories of resources?

A

natural resources/land, labor, capital, and entrepreneurs

61
Q

what are the characteristics of resources called?

A

tangible but not produced by anyone

62
Q

what is labor?

A

physical and mental talents applied to production

63
Q

what is capital?

A

produced mean of production

64
Q

what is entrepreneurship?

A

risk taking/ risk bearing and innovation

65
Q

prices of resources:

A

rent, wage, interest, profit

66
Q

in the production process, who does Bastiat say are “not” middlemen?

A

Bastiat says all are middlemen because they take the production of someone use and use it to further move the goods from raw materials to the hand of a consumer

67
Q

what does Bastiat say will control grain profits, what will control costs?

A

competition will bid profits down and will also give the incentive to keep costs low. if gov. is doing it all, there is no drive to keep costs low

68
Q

when new shipments of grain come to the country w/ varying degrees of famine, where/why does he say the grain will go first?

A

to the place with most need, because those places ate most willing to pay.
gov. would send it to where their buddies are.

69
Q

what does Bastiat predict about the cost of grain as gov. attempts to replace private grain shippers? why?

A

they will not have lower costs because all the jobs must be done and the bureaucrat wilt of the from love, no more than the business person. they will not have competition to keep costs low.

70
Q

what would make someone think that middlemen add value?

A

because value is measured by willingness to pay, and if they added no value, no one would pay them

71
Q

what is technology?

A

the way that inputs are combined to produce outputs

72
Q

t/f: chickens around the world are equally productive since the production process.

A

chickens in the US produce 7 times the eggs of chickens in the developing world due to how chickens are fed

73
Q

what is make work fallacy?

A

idea that jobs are valuable whether of not the labors production adds value

74
Q

what are ht assumptions of the production possibilities frontier model?

A

2 goods produced using a fixed amount of resources using a given technology

75
Q

the ppf would be a straight line if:

A

all resources were equally productive

76
Q

what is the most likely shape of the ppt?

A

bowed out or concave, due to the law of increasing opportunity cost

77
Q

principle of optimal arrangement

A

put the most productive resources to work first, so we get large increases in output

78
Q

which point on the ppt is the best?

A

ppt only shows possibilities to find the best, we owl need to know preferences for the diff. outputs produced, which ppt does not tell us.

79
Q

how is the eventual point on the ppf chosen?

A

in market economies, through spontaneous order. in authoritarian economies, by the authoritarian decision makers

80
Q

could an economy have health care that is “too” good?

A

many goods have value. when more of one is produced, something else must be sacrificed, and the thing sacrificed could deb more valuable than the good in question. market economies.

81
Q

explain the relevance of points beyond the ppt and points inside the ppt?

A

points beyond the ppt are not attainable with current resources/tech. points inside the ppt are inefficient

82
Q

what does economic growth look like in the ppt?

A

an outward shift of the curve happens due to better tech, better resources, or more resources

83
Q

what is the definition of the exchange?

A

price of on e countries currency in terms of other countries

84
Q

what determines demand for dollars?

A

how many goods, services, and financial instruments others want. whether people expect the dollar to gain or lose value

85
Q

what determines the supply of dollars?

A

how many goods, services, and financial instruments people who hold dollars want. whether people expect the dollar to gain or lose value. the federal reserve.

86
Q

if the dollar appreciates, what tends to happen to exports and imports?

A

exports will fall and imports will rise

87
Q

what effect does value of dollar do to price of gas?

A

strong dollar means buy lots of oil price of gas falls

88
Q

if people suddenly desire another countries goods, what happens to restore of balance?

A

people want countries currency, to buy good, increase demand for currency, increasing value of currency making countries goods more expensive

89
Q

how would government try to influence natural flow of goods and services by manipulating money?

A

federal reserve increases supply of currency so increase exports
increase supply dollar, lower value, making goods cheaper to foreigners, boosting exports

90
Q

who is mr. protectionists enemy? why?

A

his enemy are the french business that use iron, because if they stop buying iron abroad, his problem ends

91
Q

how does mr. protectionist say the law will benefit the nation?

A

more mining will employ more workers who will spend more

92
Q

if mr. protectionist law is passed, what action does state take to help him?

A

post guards at borders with guns to make sure no one brings iron from other nation

Macro economics (13 decks)

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