T2: idk what to call these anymore

Question 1

Production Possibilities Curve

Answer 1

All the possible combinations that a producer may produce of two distinct products

Question 2

PPC/F Graph

Answer 2

Different Products as X and Y. Line connecting the products at given or assumed maximum individual outputs (ex, on test 1 it was 40 and 40). Below the line is inefficient. On the line is efficient. Past the line is unattainable.

Question 3

Underutilization

Answer 3

Using fewer resources than an economy is capable of using.

Question 4

Law of Increasing Costs

Answer 4

As we shift factors of production from making one product to another, the opportunity cost of creating the second increases.

Question 5

How much more do Americans produce and earn per person than in 1750?

Answer 5

30 times as much

Question 6

Three major reasons for the 30x increase in production/earnings

Answer 6

• Improvements in technology
• Improvements in trade
• Investments in capital

Question 7

The Invisible Hand Concept

Answer 7

People acting out of self-interest leads to what’s best for society being done

Question 8

Adam Smith on the Invisible Hand

Answer 8

Said people were unaware of the Invisible Hand phenomenon in his quote in section 1.11

Question 9

The Broken Window Fallacy

Answer 9

The fallacy: Breaking a window and paying someone to fix is beneficial to society, as the glazer got work. However, in reality the shopkeeper and the glazer could’ve used their time/money for their own interests, thus it is a fallacy.

Question 10

Private Property Ownership Involves these 3 things

Answer 10

• Exclusive use
• Legal protection
• Right to transfer it to others

Question 11

Four reasons why private ownership rights propel economic growth

Answer 11

• Incentive to care for/maintain items they own
• Incentive to use and develop their property in ways others would value
• Makes owners legally responsible for damages imposed on others via their property
• Promotes conservation of resources for the future

Question 12

Chinese Agricultural Policy and its Impact

Answer 12

Farmers could keep extra rice they produced after the specific quota for the government was collected. This resulted in increased productivity because there was incentive: this spread to other industries because it increased output and opportunity for farmers.

Question 13

Significance of 65 yr old Tree Farmer

Answer 13

Due to private ownership, people have incentives to conserve resources for future use as they could be sold for more profit.

Question 14

Primary fuel for artificial lighting in the US in the 19th century

Answer 14

Whale Oil

Question 15

Whale Oil’s Connection to Economics

Answer 15

After predictions that whale oil would run out–this led to whale conservation and higher whale oil prices strengthened incentive to find and develop alternatives. Eventually was replaced by Petroleum.

Question 16

When Scarcity becomes Significant, what three incentives arise?

Answer 16

• Conserve the direct use of the resource
• Search more diligently for substitutes
• Develop new methods of discovering and recovering larger amounts of it

Question 17

The Process of Initial Invention and Widespread Adoption of Cellular Phones

Answer 17

Cell phones initially introduced in the late 1980s and sold for around $4,000 even though they were brick-sized and could barely do anything except make calls.
With time, this changed and size was reduced along with price and their powers were expanded. This is an example of the Price-Quality Pattern.

Question 18

How are pro-competition and pro-business views in tension?

Answer 18

Businesses don’t like competition and want protection from it. Businesses want prices high to make more profit, but competition hinders that goal by requiring lower prices.

Question 19

Three ways Regulation can Limit Exchange and the Functioning of Markets

Answer 19

• Restrict entry into markets
• Price controls stifle trade
• Regulations substituting for political authority undermine gains from trade

Question 20

Places where it took less than 5 days to open a business in 2015

Answer 20

Hong Kong (2.5 days), United States (4 days)

Question 21

When is and isn’t an investment productive and beneficial to society? (+ Examples)

Answer 21

If output is greater than the funds invested, the investment was productive. If not, it isn’t productive. A successful example is Google and an unsuccessful example is Broadband Sports

Question 22

How is money similar to a language?

Answer 22

Money is to an economy as language is to communication.

Question 23

Country with low inflation

Answer 23

Sweden

Question 24

Country with 20-50% inflation

Answer 24

Nigeria

Question 25

Country with hyperinflation

Answer 25

Ukraine

Question 26

Relation of High Inflation and Variance in Inflation Rates

Answer 26

When you have high inflation you will have high variance in inflation rates– so its two bad things put together.

Question 27

Marginal Tax Rate

Answer 27

The share of additional income that is taxed away at any given amount. (Ex: if you make $100 and $25 is taken for taxes, that is a 25% marginal tax rate)

Question 28

Progressive Tax Rates

Answer 28

tax rate increases as the taxable amount increases

Question 29

Regressive Tax Rates

Answer 29

tax rate decreases as taxable amount increases

Question 30

Proportional Tax Rates

Answer 30

tax rate is fixed with no change as the taxable amount changes

Question 31

Rolls Royce Example

Answer 31

Income was being taxed highly in the UK so people bought Rolls Royce’s as business expenses and paid practically nothing. as tax rates dropped so did RR sales.

Question 32

Protective Function of Government

Answer 32

Provides protection for lives, liberties, and properties (ex: theft or fraud)

Question 33

Productive Function of Government

Answer 33

Provides goods that are hard to provide in markets (ex: national defense and roads)

Question 34

Two major sources of monopoly

Answer 34

• Economies of Scale

- Grants of Privilege

Question 35

Two Antitrust Laws and Years they were Passed

Answer 35

Sherman Antitrust Act (1890)
Clayton Act (1914)

Question 36

Rational Ignorance

Answer 36

Voters having little to no idea of who and what they’re actually voting for, often because of inability to do so

Question 37

Government Failure

Answer 37

when the incentives confronted by political participants encourage counterproductive use of resources (aka… government causing economic failure)

Question 38

Four referenced provisions of the US constitution + what they have to do with economics

Answer 38

Article 1 Section 8
-Enumerated the permissible taxing and spending powers of the central gov
10th Amendment
-Allocated all other powers to the states and the people
Article 1 Section 10
-Prohibits states from adopting legislation “impairing the obligation of contracts”
5th Amendment
-Private property shall not be “taken for public use without just compensation”

Question 39

Logrolling

Answer 39

The practice of trading votes between politicians to get the necessary support to pass desired legislation

Question 40

Pork Barrel Legislation

Answer 40

the bundling of unrelated projects benefiting many interests into a single bill

Question 41

Keynesian Economics

Answer 41

The belief that government should run budget deficits during recession

Question 42

chart of the federal budget deficit as a % of GDP

Answer 42

Over 0% is a surplus, below is a deficit, most often we have deficits.
The late 90s was the only surplus (positive GDP) and that went down in the 2000s. Largest deficits were during the great depression.

Question 43

Subsidy

Answer 43

Money given by government to assist an industry/business so prices remain low/competitive.

Question 44

Rent-Seeking

Answer 44

Seeking to gain wealth without working for said wealth

Question 45

Why transfer programs may be ineffective

Answer 45

an increase in gov transfers will generally reduce the incentive of both the taxpayer-donor and the transfer recipient to earn.

Question 46

Crowding Out

Answer 46

private efforts in charity are more sensitive + focused, and so much gov charity actually just worsens the problems thus private efforts are crowded out.

Question 47

Possible Const. Changes to Limit Gov. Spending

Answer 47

• “Congress shall not levy taxes or impose quotas on either imports or exports”, as trade is a basic human right that spurs economic growth.
• A constraint on the total level of federal spending must be imposed and the budget process should begin with the establishment of this constraint.

Question 48

Public Goods

Answer 48

A good or service for which it would be inefficient or impractical to make consumers pay individually and/or exclude those who did not pay.

Question 49

Public Sector

Answer 49

The part of the economy that involves government transactions

Question 50

Private Sector

Answer 50

The part of the economy that involves transactions of individuals and businesses

Question 51

Infrastructure

Answer 51

The basic facilities that are necessary for a society to function and grow

Question 52

Free Riders

Answer 52

People who benefit from a public good that they would not have wanted to pay for (ex: if the gov builds a convenient road you didn’t want to pay for, you won’t avoid that road. ex: someone from Indiana using a new road in Ohio).

Question 53

Market Failures

Answer 53

Situations in which the market does not lead to a desired result

Question 54

Externalities

Answer 54

An economic side effect of a good or service that generates benefits or costs to someone other than the person producing/consuming. Can be positive or negative. (Ex: for a bridge, positive externalities would be that it aids visitors and construction workers get hired, but negative ones would be that air quality was lowered from construction, and the river environment is altered)

Question 55

Poverty Threshold

Answer 55

An income level below that which is needed to support families or households. 1 parent & 1 child: $15,825. 4 person family: $23,283

Question 56

Welfare

Answer 56

a general term for government aid of the poor

Question 57

Externality Graphing

Answer 57

P and Q as X and Y. MSC in place of supply line, MSB in place of demand line. MPC added in place of S’.

When MPC is right of MSC- negative externality, tax
When MPC is left of MSC- positive externality, subsidy

Question 58

MSC

Answer 58

Marginal Social Cost

Question 59

MSB

Answer 59

Marginal Social Benefit

Question 60

MPC

Answer 60

Marginal Private Cost

Question 61

Perfect Competition Graph

Answer 61

Market is just a normal graph in equilibrium. Firm has P and Q as X and Y and has a horizontal demand line equal to equilibrium of the market graph Marginal Cost is a check going through the demand line.

Question 62

Monopoly Graph

Answer 62

P and Q as X and Y. Demand line above Marginal Revenue (MR) line. Marginal Cost line is a check going through both of them.