Quiz 1

Question 1

Weak assumption

Answer 1

• more reality

- closer to reality

Question 2

Strong assumption

Answer 2

• not as realistic

- farther from reality

Question 3

Diminishing marginal utility

Answer 3

• every successive utility consumed gives less satisfaction

- after eating 14 m&ms the 15th will be less satisfying to eat and so on with m&m #16, 17 etc.

Question 4

Utility

Answer 4

Satisfaction

Question 5

Rational economic behavior

Answer 5

• internally consistent and coherent behavior

- aka : all of the items/ideas/etc. within something are consistent with one another

Question 6

Consumption

Answer 6

The act of deriving utility or satisfaction

Question 7

Goods & services

Answer 7

• things we consume, or things people make/do
• goods can be stored
• services cannot be stored, a haircut is an example

Question 8

Decision rule models how we make choices, captures a 2 step process to optimize resources

Answer 8

• how productive we are at making each of the various things —> productivity
• how much utility does each thing give us —> preferences

Question 9

Discount

Answer 9

To diminish the value of something

Question 10

Discount rate

Answer 10

• the price you pay for waiting, your “waiting fee”

- ex: the marshmallow experiment, kids that waited to eat the marshmallow were rewarded with a second marshmallow

Question 11

Productivity (mp) and preferences (mu) equals

Answer 11

Value of marginal product

mp+mu=v

Question 12

EPV

Expected
Present
Value

Answer 12

E- perception of risk
P- perception of time (low v. high discount rates)
V- how much satisfaction you feel (mu & mp)

Question 13

Opportunity cost

Answer 13

The best forgone option, going to class or sleeping

Question 14

Resource that is inevitably scarce for all individuals

Answer 14

TIME, scarce for all individuals, everyone makes choices based on the time they have 
Ex: using a certain amount of time to study for one class over another

Question 15

Contract micro and macro

Answer 15

Micro: small, models individual choice
Macro: large, examines world economy as a whole

Ex: micro studies the trees of a forest, macro studies the entire forest

Question 16

Ceteris Paribus

Answer 16

“Other things being equal”

Basically there may be complicating factors that we haven’t specifically assumed away, so whatever they are, we are assuming them away

Question 17

Marginal utility

Answer 17

The specific amount of satisfaction a specific unit gives

Question 18

Discounting the future

Answer 18

To diminish value, people want satisfaction sooner than later, the further into the future satisfaction will he realized, the more diminished value is

Question 19

How can mind altering drugs affect ones choices

Answer 19

Higher discount rate, believes less risk in doing things

Question 20

Specialization

Answer 20

Dividing up the labor across trades as well as within trades

Question 21

Division of labor

Answer 21

Dividing the word that needs to be done among a group of people to increase complexity and productivity

Question 22

Coordination mechanism

Answer 22

Allot for a fair trade, exchange between goods of surplus, a gain from trade

Question 23

Comparative advantage

Answer 23

A person that is better than another person at both activities will choose the one that has the least cost (the job where they will lose the least)

Question 24

3 roles of money

Answer 24

1. Medium of exchange
2. Store of value
3. Unit of account

Question 25

Division of labor limits

Answer 25

Division of labor is limited by the extent of the market

Question 26

Commodity money

Answer 26

Functions as money but has value in and of themselves

Ex: gold

Question 27

Fiat money

Answer 27

No commodity value, willingness of the people to accept it and the power of the government to enforce it

Question 28

Supply line represents

Answer 28

Attitudes of suppliers, what quantity they bring to the market at each price, increased price leads to increased quantity

Question 29

Circular flow of real things

Answer 29

Individuals supply factors to the factor market which are demanded by firms, firms supply products to the product market which are demanded by individuals

Question 30

Circular flow of money

Answer 30

Individuals put money into the product market which is given to firms in revenue, firms pay costs to the factor market which is given to firms in revenue, firms pay costs to the factor market which is given to individuals in wages, rent and interest

Question 31

Nice assumptions are called nice bc

Answer 31

The world does not actually operate like that

Question 32

Nice assumptions

Answer 32

Assume that markets do their job and everyone has a fair race, or no market power

Question 33

Pareto optimally

Answer 33

When no one can become better off without hurting someone else

Question 34

Division of labor increases individual productivity by:

Answer 34

• increasing dexterity
• saving time in production
• encouraging inventiveness

Question 35

Tradition coordination

Answer 35

“We’re going to do it this way because this is the way we’ve always done it”

Question 36

Command coordination

Answer 36

“Were going to do it this way because I/we said so”

Question 37

Liberal system of free markets

Answer 37

“The rules of the game are fair to all, and all play by the rules”

Question 38

Commutative justice

Answer 38

The rules of the game are fair to all and all play by the rules

Question 39

Distributive justice

Answer 39

Is the outcome of the markets system coordination fair/just to all

Question 40

No market power

Answer 40

• equal access to markets

- equal access to information

Question 41

No market failure

Answer 41

• markets form when and where they are needed

- markets function quickly and smoothly

Question 42

Characteristics of good medium for money

Answer 42

• fairly fixed supply
• portable
• continuously divisible
• won’t spoil