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ECON102 > Midterm I > Flashcards

Midterm I Flashcards

1
Q

What is Total Cost (TC)?

A

The total cost associated with the production of goods

Total cost includes all costs incurred in the production process.

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2
Q

Define Marginal Cost (MC).

A

The cost of producing one additional unit of a good

Marginal cost can be represented as the change in total cost when output is increased by one unit.

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3
Q

What does the Law of Increasing Marginal Cost state?

A

Each additional unit produced will add more to total cost than the previous unit

This principle explains why the marginal cost curve slopes upward.

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4
Q

What is meant by Increasing Marginal Opportunity Cost?

A

As more of a good is produced, the cost of an additional unit increases

This concept emphasizes the trade-offs involved in production.

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5
Q

Summarize the key point about total activity and costs.

A

The more of an activity you do, the more in total you must give up

Each additional unit causes you to give up more than the previous unit did.

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6
Q

What is Allocation Efficient?

A

The optimal combination of all possible combinations of goods

No other combination would make people better off.

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7
Q

What is Economic Growth?

A

A change which causes the Production Possibility Frontier (PPF) to shift to the right

Economic growth can result from improvements in technology or resources.

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8
Q

How can Allocation Efficient be determined?

A

By comparing the marginal cost of a unit to how much someone would be willing to give up to get it

This assessment helps identify the most beneficial allocation of resources.

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9
Q

True or False: Economic growth fully eliminates trade-offs.

A

False

Economic growth does not eliminate the fact that trade-offs still exist.

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10
Q

Fill in the blank: The _______ shifts to the right with economic growth.

A

Production Possibility Frontier (PPF)

A rightward shift indicates an increase in an economy’s capacity to produce.

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11
Q

What is a Positive Statement?

A

A description of how the world is, proven true or false by observable data

Example: A hypothesis that asserts a relationship between two or more variables.

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12
Q

What is a Normative Statement?

A

A description of how someone wants the world to be, based on preferences and containing a value judgment

Example: A statement about the desirability of certain economic outcomes.

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13
Q

Convert the following Normative Statement into a Positive Statement: ‘The government should increase the minimum wage.’

A

The government increases the minimum wage

This statement can be tested for its truthfulness based on observable outcomes.

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14
Q

Define Economics.

A

The social science that studies the choices individuals make as they cope with scarcity

It examines how incentives influence decisions.

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15
Q

What is Microeconomics?

A

The study of how individuals and firms make decisions and how they interact in markets

Focuses on small-scale economic activities.

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16
Q

What is Macroeconomics?

A

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

Deals with large-scale economic factors.

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17
Q

What are the Three Elements of a Theory?

A
  • Simple
  • General
  • Useful

These elements help in predicting real-world phenomena.

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18
Q

What does it mean for a theory to be ‘Simple’?

A

Focusing on fewer variables than the real world

This simplification allows for clearer understanding and analysis.

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19
Q

What does it mean for a theory to be ‘General’?

A

Applies everywhere

A general theory can be applied to various situations and contexts.

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20
Q

What does it mean for a theory to be ‘Useful’?

A

Able to correctly and always predict real-world phenomena

A useful theory provides reliable insights and predictions.

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21
Q

What is a Positive Statement?

A

A description of how the world is, proven true or false by observable data

Example: A hypothesis that asserts a relationship between two or more variables.

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22
Q

What is a Normative Statement?

A

A description of how someone wants the world to be, based on preferences and containing a value judgment

Example: A statement about the desirability of certain economic outcomes.

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23
Q

Convert the following Normative Statement into a Positive Statement: ‘The government should increase the minimum wage.’

A

The government increases the minimum wage

This statement can be tested for its truthfulness based on observable outcomes.

24
Q

Define Economics.

A

The social science that studies the choices individuals make as they cope with scarcity

It examines how incentives influence decisions.

25
Q

What is Microeconomics?

A

The study of how individuals and firms make decisions and how they interact in markets

Focuses on small-scale economic activities.

26
Q

What is Macroeconomics?

A

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

Deals with large-scale economic factors.

27
Q

What are the Three Elements of a Theory?

A
  • Simple
  • General
  • Useful

These elements help in predicting real-world phenomena.

28
Q

What does it mean for a theory to be ‘Simple’?

A

Focusing on fewer variables than the real world

This simplification allows for clearer understanding and analysis.

29
Q

What does it mean for a theory to be ‘General’?

A

Applies everywhere

A general theory can be applied to various situations and contexts.

30
Q

What does it mean for a theory to be ‘Useful’?

A

Able to correctly and always predict real-world phenomena

A useful theory provides reliable insights and predictions.

31
Q

What is Absolute Advantage?

A

The entity that can produce the most given a certain amount of resources.

Absolute advantage focuses on production capacity without considering costs.

32
Q

Who has the absolute advantage in producing bananas?

A

Wilson

Wilson can produce more bananas than Chuck given the same resources.

33
Q

What does Absolute Advantage not consider?

A

Costs

Absolute advantage only looks at the volume of production, not the cost of production.

34
Q

In the context of Absolute Advantage, what does specialization refer to?

A

Focusing on producing goods where one has an absolute advantage.

Specialization can lead to increased efficiency and productivity.

35
Q

Fill in the blank: Absolute advantage is about who can produce more given a certain amount of _______.

A

time or materials

36
Q

What is the relationship between Autarky and specialization in trade?

A

Autarky refers to self-sufficiency, while specialization in trade involves focusing on producing goods for trade.

Specialization can enhance trade opportunities and economic efficiency.

37
Q

List two key points about Absolute Advantage.

A
  • It is determined by the ability to produce more with the same resources.
  • It does not account for the costs of production.
38
Q

What is Opportunity Cost?

A

The value of the best next best alternative that must be given up in order to engage in an economic activity.

Opportunity cost is a fundamental concept in economics that helps to understand trade-offs in decision-making.

39
Q

Define Comparative Advantage.

A

The entity that gives up the least to produce a good; produces something at a lower opportunity cost.

Comparative advantage is key to understanding trade and specialization.

40
Q

True or False: An entity with absolute advantage in both goods cannot find a trading partner with a comparative advantage.

A

False.

Even if someone has the absolute advantage in one or both goods, they can still find a trading partner with a comparative advantage.

41
Q

What does Autarky mean?

A

When an entity produces exactly what it consumes; also called self-sufficiency.

Autarky limits trade and specialization.

42
Q

Define Specialization.

A

When the goods an entity produces are not the same as what that entity consumes.

Specialization allows for increased efficiency in production.

43
Q

Fill in the blank: Trade allows for _______.

A

specialization.

44
Q

Fill in the blank: Specialization increases _______.

A

production.

45
Q

What can trade allow people to do?

A

Consume more than they could if they were making everything themselves.

Trade enables entities to focus on their strengths and increases overall consumption.

46
Q

Trade can benefit _______.

A

both parties.

47
Q

True or False: Specialization in your comparative advantage is unproductive.

A

False.

Specialization in comparative advantage is productive and leads to greater efficiency.

48
Q

What is the relationship between voluntary trade and benefit?

A

Voluntary trade benefits both parties.

49
Q

What is the formula to calculate the opportunity cost of 1 Car?

A

The Opportunity Cost of 1 Car = x Boats / Cars

This represents the number of Boats given up per Car produced.

50
Q

What is the formula to calculate the opportunity cost of 1 Boat?

A

The Opportunity Cost of 1 Boat = Y Cars / X Boats

This represents the number of Cars given up per Boat produced.

51
Q

True or False: Exchange only works on a national level.

A

False

Exchange works on an international level too.

52
Q

What does it mean if one nation is relatively better than another?

A

It doesn’t mean it isn’t set up to do one thing

A nation can be better in one area while still having a comparative advantage elsewhere.

53
Q

Can any entity have a comparative advantage in everything?

A

No

No entity can have the comparative advantage in everything.

54
Q

To have a comparative advantage, what must you be in terms of production costs?

A

You have to be high-cost in producing something

This implies that it is cheaper to trade for the good than to produce it yourself.

55
Q

Fill in the blank: The Opportunity Cost of 1 Boat = ______.

A

Y Cars / X Boats

56
Q

Fill in the blank: The Opportunity Cost of 1 Car = ______.

A

x Boats / Cars

ECON102 (2 decks)

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