Midterm 1 Flashcards
We are faced with limited resources and unlimited human wants and needs. What in one word makes economizing necessary?
Scarcity
What law systems seem to do a better job at enforcing contracts and securing property rights according to Miller?
English common law
What institutions (rules of the game) are the most important for economic growth?
Political stability, secure private property rights, and legal system based on the rule of law.
What do economists have to say about the idea that “wealth = material things”?
Wealth is subjective
As we did in class, be able to compare opportunity cost of production (PPF) and figure out who has a comparative advantage in producing a good
Common sense
The Coke versus Pepsi challenge illustrated
Elastic demand and supply
How does Miller explain the growing American waistline?
If your time is worth more, because you are making more money, you are more likely to go eat fast food because it’s more time sensitive. Also, the woman in the work force has led to a lack of home cooked meals.
The most famous example of “Incentives Matter” in Economics according to Roberts?
The idea, that when something gets more expensive, people buy less of it. Demand Curve. Jail birds going to Australia, keeping them alive, gets the guards more money.
Be prepared to perform an elasticity calculation using this formula: Percentage change in quantity demanded divided by the percentage change in price.
In notes
Be able to determine from an elasticity calculation whether the demand for a good is relatively elastic or inelastic.
Elastic > 1, Inelastic
Market-based systems ration scarce goods based on what criteria? (not by ripping phone books in half)
Supply and Demand
Know the shifters of supply very well
PIPER: Population, Income, Preferences, expectation of future prices, related goods (subsitutites, and compliments goods)
Forcing yourself to do something you aren’t enjoying, so you can get your time/money “worth”
Sunk Cost
What are the shifters of the demand curve?
INERT: Input goods, number of producers, expectations, related goods, technology
The My Cookie activity we did in class illustrated:
Spontaneous order
What were we illustrating with the “house fire” example in class?
Opportunity cost
We showed the Mousemate video with with Barats and Bereta in class to illustrate:
Rules of the game
Why did Von Mises predict that the new Soviet socialist economy would never work?
Price control
What was Keynes’s solution to end high unemployment?
Increase government spending
What happened when the Labor Party came into power in Britain in 1945?
The nationalization of Industries. The economy became a mixed economy
In 1971, it seemed that stagflation signaled the end of Keynesianism. You had two things at the same time, which under the Keynesian view would have been impossible. You had stagnation in the economy, high level of unemployment. You had inflation, with prices rising rapidly. Going against the advise of his economic advisor Milton Friedman, what formed the basis of President Nixon’s new economic policy?
Wage of price controls
One of the most important things that the government of Margaret Thatcher does is invent something called?
Privatization: selling nationalized industries.
Which way do supply curves slope?
Up
Know about the elasticity of demand for cigarettes
It is elastic, won’t change much
What kind of demand does Bruce Dickinson in the SNL cowbell skit have for cowbell.
Inelastic
Know what left and right shifts of demand mean.
Shifts to the left = decreasing, shifts to the right = increasing
Know what left and right shifts of supply mean
Shifts to the left = decreasing, shifts to the right = increasing
Which way do demand curves slope?
Down
What were Morgan and I were trying to illustrate with the frog skit?
Consumer/produce surplus
What does Miller have to say about the costs and benefits of safety.
All in the margins
Unintended consequences of price controls on gasoline?
Shortages
Both floors and ceilings represent an attempt to do what?
Price controls
Marginal Benefit
the maximum amount they are willing to pay to consume that additional unit of a good or service. In a normal situation, the marginal benefit will decrease as consumption increases
Transaction costs
The cost associated with exchange of goods or services and incurred in overcoming market imperfections.
Economic freedom index
A ranking of countries or states based on the number and intensity of government regulations on wealth-creating activity.
Read more: Index Of Economic Freedom Definition | Investopedia http://www.investopedia.com/terms/i/index-of-economic-freedom.asp#ixzz40bbtGnAj
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Sunk costs
A cost that has already been incurred and thus cannot be recovered
Type 2 error
a statistical term used within the context of hypothesis testing that describes the error that occurs when one accepts a null hypothesis that is actually false. The error rejects the alternative hypothesis, even though it does not occur due to chance
Production possibility frontier
the graph which indicates the various production possibilities of two commodities when resources are fixed. The production of one commodity can only be increased by sacrificing the production of the other commodity. It is also called the production possibility curve or product transformation curve.
Type 1 error
An error in which it is believed that a difference exists or is observed, when in fact there is none. “False positive” is another way of understanding a type 1 error. It can result in an incorrect decision to reject something that should have been accepted, Also called alpha error or alpha risk.
Diminishing Marginal utility
a law of economics stating that 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
Free lunch
a good or service is received at no cost, with the true cost of the good or service ultimately borne by some party, which may even include the recipient
Economic institutions
Network of commercial organizations (such as manufacturers, producers, wholesalers, retailers, and buyers) who generate, distribute, and purchase goods and services. See also financial institutions.
Incentive
Something that motivates you to do something
Comparative advantage
s the ability of a firm or individual to produce goods and/or services at a lower opportunity cost than other firms or individuals
Marginal cost
variable costs consisting of labor and material costs, plus an estimated portion of fixed costs (such as administration overheads and selling expenses).
Opportunity cost
A benefit, profit, or value of something that must be given up to acquire or achieve something else
Equilibrium price
the state in which market supply and demand balance each other and, as a result, prices become stable. The balancing effect of supply and demand results in a state of equilibrium
Spontaneous order
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Gains from trade
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Scarcity
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Subjective value
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Law of supply
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Law of supply
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Law of demand
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Specialization
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SWEET
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What did Sherri use as an example in her lecture to illustrate social cooperation?
Rush hour traffic
