Terms

Question 1

Scarcity

Answer 1

Limited resources to satisfy unlimited wants

Question 2

Factors of Labor

Answer 2

Land
Labor
Capital
Entrepreneurship

Question 3

Land

Answer 3

Natural Resources

Question 4

Labor

Answer 4

Human effort and skills in production

Question 5

Capital

Answer 5

Physical: Man-made tools, machines, builds

Human: Skills, knowledge, experiences

Question 6

Trade-off

Answer 6

All alternatives that we give up whenever we choose something

Question 7

Opportunity Cost

Answer 7

Value of next best alternative when you decide to get or do something

Question 8

Marginal Analysis

Answer 8

Decide whether to use additional resource

Question 9

Total Utility

Answer 9

Measure of benefit one receives from an activity

Question 10

Marginal Utility

Answer 10

• Added satisfaction from having one more good. Change in total utility

Question 11

Consumption bundle

Answer 11

Collection of goods or service consumed by individual

Question 12

Diminishing Marginal Utility

Answer 12

Decreasing additional satisfaction from consuming extra unit of good

Question 13

Law of Diminishing MU

Answer 13

Each additional unit of a good provides less utility than previous one

Question 14

Income effect

Answer 14

Price affect purchasing power, if price goes up, you have lower purchasing power

Question 15

Substitution effect

Answer 15

Change in price causes consumers to prefer less expensive goods

Question 16

Marginal Cost

Answer 16

Extra cost in order to make one more thing

Question 17

Marginal Benefit

Answer 17

Extra benefit you gain from consuming one more thing

Question 18

Utility

Answer 18

Satisfaction or benefit from consuming goods/services

Question 19

Budget Constraint

Answer 19

Limit on spending based on income and prices

Question 20

Utility Maximization Rule

Answer 20

Allocate spendings so that MU per dollar is equal to all goods

Question 21

Optimal Consumption Bundle

Answer 21

Combination of goods that maximizes utility within budget

Question 22

Optimal Consumption Rule

Answer 22

MU per dollar spent must be same for all goods and services in consumption bundle

Question 23

Indifference Curve

Answer 23

Graph showing combinations of goods that provide same utility

Question 24

Marginal Rate of Substitution (MRS)

Answer 24

Rate which consumer is willing to trade one good for another while maintaining same utility

Question 25

Consumer Equilibrium

Answer 25

Point where budget line is tangent to highest indifference curve, maximizing utility

Question 26

Positive Economy

Answer 26

Limited to if and then type assertion
- Factual Statements
- Higher than expected

Question 27

Normative Economy

Answer 27

Making value judgments on what should be done
- Expected

Question 28

Types of Opportunity Cost

Answer 28

Explicit Opportunity Cost

Implicit Opportunity Cost

Question 29

Explicit Opportunity Cost

Answer 29

Direct, out-of-pocket costs incurred when choosing one option over another

Example: Spending $20 on a movie ticket means not using that $20 for something else.

Question 30

Implicit Opportunity cost

Answer 30

Indirect, non-monetary cost, value of time or forgone experiences

Example: Choosing to spend time studying instead of going out with friends means sacrificing the enjoyment and social benefits of that time.