Opportunity Cost

Question 1

Microeconomics

Answer 1

• the branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units—that is, firms and households.
• looks at the individual unit—the household, the firm, the industry. It sees and examines the “trees.”

Question 2

Micro economic concerns

Answer 2

1. Production/output in individual industries and businesses.
2. Price of individual goods and services
3. Distribution of income and wealth
4. Employment by individual businesses and industries

Question 3

Macro economic concerns

Answer 3

1. National production/output
2. Aggregate price level
3. National income
4. Employment and unemployment in the economy

Question 4

Behavioral economics

Answer 4

uses psychological theories relating to emotions and social context to help understand economic decision making and policy. Much of the work in behavioral economics focuses on the biases that individuals have that affects the decisions they make.

Question 5

Comparative economic systems

Answer 5

examines the ways alternative economic systems function. What are the advantages and disadvantages of different systems?

Question 6

Econometrics

Answer 6

applies statistical techniques and data to economic problems in an effort to test hypotheses and theories. Most schools require economics majors to take at least one course in statistics or econometrics

Question 7

Empirical Economics

Answer 7

collection and use of data to test economic theories

Question 8

Economic development

Answer 8

focuses on the problems of low-income countries. Important concerns of development for economists include population growth and control, provision for basic needs, and strategies for international trade.

Question 9

Economic history

Answer 9

traces the development of the modern economy.

Question 10

Environmental economics

Answer 10

studies the potential failure of the market system to account fully for the impacts of production and consumption on the environment and on natural resource depletion.

Question 11

Finance

Answer 11

examines the ways in which households and firms actually pay for, or finance, their purchases. It involves the study of capital markets (including the stock and bond markets), futures and options, capital budgeting, and asset valuation.

Question 12

Health economics

Answer 12

analyzes the health care system and its players: government, insurers, health care providers, and patients.

Question 13

The history of economic thought

Answer 13

studies the development of economic ideas and theories over time, from Adam Smith in the eighteenth century to the works of economists such as Thomas Malthus, Karl Marx, and John Maynard Keynes. Because economic theory is constantly developing and changing, studying the history of ideas helps give meaning to modern theory and puts it in perspective.

Question 14

Industrial organization

Answer 14

looks carefully at the structure and performance of industries and firms within an economy. How do businesses compete? Who gains and who loses?

Question 15

International economics

Answer 15

studies trade flows among countries and international financial institutions. What are the advantages and disadvantages for a country that allows its citizens to buy and sell freely in world markets? Why is the dollar strong or weak?

Question 16

Labor economics

Answer 16

deals with the factors that determine wage rates, employment, and unemployment. How do people decide whether to work, how much to work, and at what kind of job? How have the roles of unions and management changed in recent years?

Question 17

Law and economics

Answer 17

analyzes the economic function of legal rules and institutions. How does the law change the behavior of individuals and businesses? Do different liability rules make accidents and injuries more or less likely? What are the economic costs of crime?

Question 18

Public economics

Answer 18

examines the role of government in the economy.

Question 19

Positive economics

Answer 19

(FACT) An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works.

Question 20

Normative economics

Answer 20

(OPINION) An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics.

Question 21

Descriptive economics

Answer 21

The compilation of data that describe phenomena and facts.

Question 22

Economic theory

Answer 22

A statement or set of related statements about cause and effect, action and reaction.

Question 23

Model

Answer 23

A formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables.

Question 24

Variable

Answer 24

A measure that can change from time to time or from observation to observation.

Question 25

Ockham’ s razor

Answer 25

The principle that irrelevant detail should be cut away.

Question 26

The Post Hoc Fallacy

Answer 26

post hoc, ergo propter hoc Literally, “after this (in time), therefore because of this.” A common error made in thinking about causation: If Event A happens before Event B, it is not necessarily true that A caused B.

Question 27

The Fallacy of Composition

Answer 27

fallacy of composition The erroneous belief that what is true for a part is necessarily true for the whole.

Question 28

Efficiency

Answer 28

efficiency In economics, allocative efficiency. An efficient economy is one that produces what people want at the least possible cost. An efficient market is characterized by the fact that profit opportunities are eliminated almost instantaneously

Question 29

Equity

Answer 29

Fairness

Question 30

Capital

Answer 30

things that are themselves produced and that are then used in the production of other goods and services

Question 31

Factors of production (or factors)

Answer 31

the inputs into the process of production. Another word for resources.

Question 32

Production

Answer 32

the process that transforms scarce resources into useful goods and services

Question 33

Inputs or Resources

Answer 33

anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants

Question 34

Outputs

Answer 34

usable products

Question 35

Scarcity and Choice in a one-person Economy

Answer 35

Nearly all the same basic decisions that characterize complex economies must also be made in a simple economy.

Question 36

Opportunity costs

Answer 36

The best alternative that we give up, or forgo, when we make a choice or decision

Question 37

Theory of comparative advantage

Answer 37

Ricardo’s theory that specialization and free trade will benefit all trading parties, even those that may be absolutely more efficient producers.

Question 38

Absolute advantage

Answer 38

A producer has an absolute advantage over another in the production of a good or service if it can produce that product using fewer resources

Question 39

Comparative advantage

Answer 39

A producer has a comparative advantage over another in the production of a good or service if it can produce that product at a lower opportunity cost

Question 40

Weighing Present and Expected Future Costs and Benefits

Answer 40

We trade off present and future benefits in small ways all the time.

Question 41

The Production Possibility Frontier (ppf)

Answer 41

A graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently.

Question 42

Inefficiency

Answer 42

• Waste and mismanagement are the results of a firm’s operating below its potential.
• Sometimes, inefficiency results from mismanagement of the economy instead of mismanagement of individual private firms.

Question 43

The Efficient Mix of Output

Answer 43

To be efficient, an economy must produce what people want.

Question 44

Unemployment

Answer 44

During economic downturns or recessions, industrial plants run at less than their total capacity. When there is unemployment of labor and capital, we are not producing all that we can

Question 45

Economic growth

Answer 45

An increase in the total output of an economy. It occurs when a society acquires new resources or when it learns to produce more using existing resources

Question 46

The three economic questions

Answer 46

(1) What gets produced?
(2) How is it produced?
(3) Who gets it?