Topic 1

Question 1

The big questions society must answer:

Answer 1

(1) What to make?
(2) How to make it?
(3) Who gets to consume it?

Question 2

Microeconomics provides a model of resource allocation through ________.

Answer 2

Markets

Question 3

A meeting together of people for the purpose of trade by private purchase and sale ( where buyers and sellers get together )

Answer 3

Market

Question 4

True or False: Economists employ a very broad notion of the term market.

Answer 4

True

Question 5

Characteristics of a Market:

Answer 5

(1) Price
(2) Buyers
(3) Sellers

Question 6

We live in a world of _______.

Answer 6

Scarcity

Question 7

If you must give something up to get more of something else.

Answer 7

Scarce

Question 8

Because of scarcity we are constantly facing _____.

Answer 8

Choices

Question 9

Note that all choices involve some kind of _______ because of scarcity.

Answer 9

Trade off

Question 10

Economic Model assumes people _____ and an _______ resource allocation results.

Answer 10

(1) Optimize

(2) Equilibrium

Question 11

Economic Model based on Several Principles:

Answer 11

(1) Incentive Matter
(2) Life consists of trade offs.
(3) Rational people make choices at the margin.
(4) Trade offs make people better
(5) Good institutions align self interest with the social interest

Question 12

People make choices in response to the benefits and costs presented by those decisions.

Answer 12

Principle 1: Incentives Matter

Question 13

The true cost of anything is what you must give up to get it.

Answer 13

Principle 2: Life consists of trade offs.

Question 14

Consider the benefits and costs of a particular action.

Answer 14

Principle 3: Rational people make choices at the margin.

Question 15

Trade is a voluntary activity: people only trade if they expect to be made better off. Trade moves goods from lower value and higher value. The increase value is called “the gains from trade”.

Answer 15

Principle 4: Trade makes people better

Question 16

Where institutions are good, you get rich by developing new products or better or less expensive versions of existing products.

Answer 16

Principle 5: Good institutions align “self interest” with the social interest.

Question 17

True or False: Models are never realistic.

Answer 17

True

Question 18

The economic model is _____ rather than _______.

Answer 18

(1) Positive

(2) Normative

Question 19

Addresses the consequence of an action. ( uses the word will )

Answer 19

Positive Statement

Question 20

Expresses a value judgement.

Answer 20

Normative Statement

Question 21

Marginal means _______.

Answer 21

Additional

Question 22

True or False: If the marginal benefits >= marginal costs, do it!

Answer 22

True

Question 23

Marginal benefits and marginal costs are those that are affected by the _________.

Answer 23

Action

Question 24

People respond to ______.

Answer 24

Incentives

Question 25

The true cost of any choice is the opportunity we give up when we make that choice.

Answer 25

Opportunity Cost

Question 26

True or False: Good decisions focus on the costs affected and ignore sunk costs.

Answer 26

True

Question 27

Costs that are affected by action. They are costs that change at the margin.

Answer 27

Opportunity Costs

Question 28

True or False: Sunk Costs are irrelevant.

Answer 28

True