Quiz 1 (P.1-17)

Question 1

Economics is about the study of…

Answer 1

Economics is about the study of efficient (least wasteful) use of scarce resources.

Question 2

Why does scarcity always exist?

Answer 2

Scarcity always exists because human “wants” exceed current limits of available resources or technology.

Question 3

Microeconomics is the study of…

Answer 3

Microeconomics is the study of the economic behaviour/decisions of individual firms, industries or consumers, given their limited resources.

Question 4

Macroeconomics is the study of… (2)

Answer 4

Macroeconomics is the study of the collective economic decisions by group and the study of the impact on the whole country (inflation, unemployment, recovery, recession, interest rates, etc.

Question 5

What are the factors (or inputs, or intermediate goods) of production(3)?

Answer 5

Labour (number &/or skills of workers)
Land (all natural attributes & resources, fisheries, the weather)
Capital (technology-machinery, buildings, equipment, etc.)

Question 6

What economic problems does scarcity cause?

Answer 6

Scarcity causes production (p’n) to question what and how to produce and causes distribution (d’n) to question how to distribute production.

Question 7

What are economic systems?

Answer 7

Economic systems are human organizations designed to attempt to solve the problems of production and distribution.

Question 8

If a country is self-sufficient, can an economic system eliminate economic problems?

Answer 8

No, an economic system cannot eliminate economic problems. Even is a country is self-sufficient, meaning that their needs are being met, scarcity is always present therefore wants may not be fulfilled.

Question 9

What are the types of economic systems? (3)

Answer 9

Tradition, command and market system.

Question 10

What is a tradition system?

Answer 10

A tradition system is where economic decisions are dealt with by tradition. Works best in a static environment.

Question 11

What is a pro and a con of a tradition system?

Answer 11

A pro: Social stability (everyone knows their role)

A con: Inflexible and resistant to change.

Question 12

What is a command system?

Answer 12

A command system is where economic decisions are made by the government.

Question 13

What is a pro and 2 cons of a command system?

Answer 13

A pro: Effective system for creating change at the will of leadership
A con: Leadership can be destructive
Another con: The more industrialized and complex a country becomes, the harder for the government to make sound decisions.

Question 14

What is a market system?

Answer 14

A market system is where economic decisions are made in a decentralized manner by all individual private firms and consumers. It works because of property rights.

Question 15

What is a pro and a con of a market system?

Answer 15

A pro: more efficient arrangement for a complex industrialized society.
A con: business cycle problems

Question 16

In a market system, who are decisions made by?

Answer 16

Decisions are made by firms, households and government in a market system.

Question 17

In a market system, what is a firm’s goal?

Answer 17

A firm’s goal is to maximize profit by keeping costs low and output high.

Question 18

In a market system, what is a household’s goal?

Answer 18

A household’s goal is to maximize both leisure and income.

Question 19

What do firms compete for in a market system?

Answer 19

Firms compete for customers

Question 20

What do households compete for in a market system?

Answer 20

Households compete for jobs.

Question 21

What does accounting cost include?

Answer 21

Accounting cost includes the out-of-pocket expenses to do something.

Question 22

What is a sunk cost?

Answer 22

A sunk cost is one that is irrelevant to a decision.

Question 23

What is an opportunity cost?

Answer 23

An opportunity costs is the value to you of what you would have to give up. Ex/ Going to a concert: missed study time and money spent.

Question 24

What is a positive statement?

Answer 24

A positive statement is one that can be verified, but is not necessarily true.

Question 25

What is a normative statement?

Answer 25

A normative statement is an opinion, but can be higher or lower quality depending on research.

Question 26

What is an economic forecast?

Answer 26

An economic forecast is a detailed probability estimate of future events. Its purpose is to assess risk based on currently known facts.

Question 27

What causes variation in economic forecasts? Why is variation helpful?

Answer 27

Different views and specialties of economists causes variation in forecasts. Variation is helpful because it helps assess risk factors.

Question 28

What is it called when “all other things held equal”?

Answer 28

Ceteris paribus

Question 29

What are the conditions to be considered unemployed (3)?

Answer 29

1. 15 years old or over
2. Actively seeking work
3. Available for work

Question 30

Who are discouraged workers?

Answer 30

Discouraged workers are those who have been out of work for too long and are no longer part of the labour force.

Question 31

The mix of part-time vs full time employment is an important indicator of…

Answer 31

The mix of part-time vs full time employment is an important indicator of economic health.

Question 32

How long does it take to establish a trend?

Answer 32

A trend is established over a period of about 3-6 months.

Question 33

What are the 3 main measurement problems for the unemployment rate data?

Answer 33

1. Unrealistic wage expectations (overstates problem)
2. Discouraged workers (understates problem)
3. Involuntary part-time workers (understates problem)

Question 34

What are four types of unemployment?

Answer 34

Frictional (Fr), Structural (St), Cyclical (Cy), and seasonal.

Question 35

What is frictional (Fr) unemployment?

Answer 35

Frictional unemployment is those unemployed because they are between jobs (contracts), are new entrants into the labour force, or due to normal business conditions

Question 36

What is structural (St) unemployment?

Answer 36

Structural unemployment is those unemployed because of permanent changes in a region or industry - mismatch between skills and workers

Question 37

What is cyclical (Cy) unemployment?

Answer 37

Cyclical unemployment is those unemployed because of temporary conditions (e.g. recession)

Question 38

What does the natural rate of unemployment (NR) / full employment include?

Answer 38

The natural rate of unemployment is what the unemployment rate would be if there was no cyclical unemployment (Fr and St are always present)

Question 39

How can we calculate the NR?

Answer 39

NR= Fr+St/LF x 100 or NR= UR-Cy/LF x 100

Question 40

What are the costs (4) of unemployment to the entire economy?

Answer 40

Loss of potential output (income), loss in human capital, increase in criminal and health care costs, and loss of tax revenue for the government.

Question 41

What is Okun’s law?

Answer 41

Okun’s law states that for every 1% necessary to drop UR to NR/Full employment, there needs to be a 3% increase in Real GDP.

Question 42

How do we calculate Potential Output/ Output at full employment?

Answer 42

UR-NR=x
multiply x by 3= y
y/100 + 1 multiplied by current Real GDP

Question 43

What are the kinds of markets (2)?

Answer 43

Goods market (final products) and factor market (inputs).

Question 44

What are real flows and financial flows?

Answer 44

Real flows are the delivery of goods and services and financial flows are payments.