Module 1

Question 1

What are three important subjects in Economics?

Answer 1

1. Economic Methodology (Reviewing the Scientific Method)
2. Compare the goals and domains of macroeconomics and microeconomics
3. Examine key elements of the economic perspective

Question 2

What is the definition of economics?

Answer 2

A social science focused on the effective utilization of limited resources in reaching maximum satisfaction of human materials.

Question 3

Why do economists use the scientific method?

Answer 3

To establish theories, laws, a principles.

Question 4

What are the five basic elements of the scientific method?

Answer 4

1. Observation of the facts (real data)
2. Formulation of hypotheses based on facts
3. Testing of hypotheses
4. Acceptances, rejection, or modification of the hypotheses
5. Determination of theory, law, principle, or model

Question 5

The ________ is the way the national income divides among different receivers (how it seperates along the lines of wages, interest, rents, profits, etc)

Answer 5

Functional Distribution of Income

Question 6

What are the key steps in determining the FDI?

Answer 6

1. Compute the proportion of wages and salaries in the national income (wages and salaries make up 70%)
2. Find the Proprietors Income Share
   (Self Employed business owners, doctors, lawyers; Less than 10% total)
3. Calculate the fraction of capitalist income, corp profits, rent, and interest.
   (Makes up less than 20% of the total)

Question 7

The _______ is a tool that visually demonstrates the basic economic principles of scarcity, opportunity cost, and the law of increasing costs.

Answer 7

Production Possibilities Curve

Question 8

The ______ is a tool to help understand the market economy.

Answer 8

Circular Flow Model

Question 9

What do the Production Possibilities tables and curves help us to address?

Answer 9

The economizing problem, or the question of how we can do the best we can with our limited resources.

Question 10

What does the production possibilities curve provide an image of?

Answer 10

The choices we make

Question 11

How is the market system examined?

Answer 11

By combining all the markets in the economy and observing the coordination of economic activity through market prices.

Question 12

What are the important elements of the market system?

Answer 12

1. Private Property
2. Freedom of Enterprise
3. Freedom of Choice
4. Self-Interest
5. Competition
6. Specialization
   - division of labor
   - geographic specialization

Question 13

The goal of the _________ was to serve as an efficient, practical measuring tool to compare economic freedom in countries all over the world.

Answer 13

The Index of Economic Freedom

Question 14

True or False?

The higher the score on the Index of Economic Freedom the more attractive.

Answer 14

False

Question 15

The ________ score means a higher level of government interference, The __________ means a lower level of economic freedom.

Answer 15

Higher; Lower

Question 16

________ are simplified versions of reality used to analyze real world economic situations

Answer 16

Economic Models