Unit 1: Basic Concepts

Question 1

Economics

Answer 1

Study of scarcity and choice

Question 2

Individual choice

Answer 2

Decisions by individuals about what to do and what not to do

Question 3

Economy

Answer 3

System that coordinates choices about production with choices about consumption, and distributes goods and services to the people who want them

Question 4

Market economy

Answer 4

Production and consumption are the result of decentralized decisions by many firms and individuals (no central authority)

Question 5

Command economy

Answer 5

Industry is publicly owned and there is a central authority making production and consumption decisions

Question 6

Incentives

Answer 6

Rewards or punishments that motivate particular choices

Question 7

Property rights

Answer 7

Establish ownership and grant individuals the right to trade goods and services with each other

Question 8

Marginal analysis

Answer 8

Study of costs and benefits of doing a little bit more of an activity versus a little bit less

Question 9

Resource

Answer 9

Anything that can be used to produce something else

Question 10

Land

Answer 10

All resources coming from nature, such as minerals, timber, and petroleum

Question 11

Labor

Answer 11

Effort of workers

Question 12

Capital

Answer 12

Manufactured goods used to make other goods and services

Question 13

Entrepreneurship

Answer 13

Efforts of entrepreneurs in organizing resources for production, taking risks to create new enterprises, and innovating to develop new productions and production processes

Question 14

Scarce

Answer 14

Resource not available in sufficient quantities to satisfy all the various ways a society wants to use it

Question 15

Opportunity cost

Answer 15

Value of what must be given up when making a particular choice

Question 16

Microeconomics

Answer 16

Study of how people make decisions and how those decisions interact

Question 17

Macroeconomics

Answer 17

Concerned with overall ups and downs in the economy

Question 18

Economic aggregates

Answer 18

Economic measures that summarize data across many different markets

Question 19

Positive economics

Answer 19

Branch of economic analysis that describes the way the economy actually works

Question 20

Normative economics

Answer 20

Makes prescriptions about the way an economy should work

Question 21

Business cycle

Answer 21

Short-run alternation between economic downturns (recessions) and economic upturns (expansions)

Question 22

Depression

Answer 22

Deep and prolonged economic downturn

Question 23

Expansions

Answer 23

Periods of economic upturns (recoveries) when output and employment are rising

Question 24

Employment

Answer 24

Number of people currently employed in the economy

Question 25

Unemployment

Answer 25

Number of people who are actively looking for work but aren’t currently employed

Question 26

Labor force

Answer 26

Equal to the sum of employment and unemployment

Question 27

Unemployment rate

Answer 27

Percentage of the labor force that is unemployed

Question 28

Output

Answer 28

Quantity of goods and services produced

Question 29

Aggregate output

Answer 29

Economy’s total production of goods and services for a given period of time

Question 30

Inflation

Answer 30

Rising overall price level

Question 31

Deflation

Answer 31

Falling overall price level

Question 32

Price stability

Answer 32

When the economy’s aggregate price level is changing slowly

Question 33

Economic growth

Answer 33

An increase in the maximum amount of goods and services an economy can produce

Question 34

Model

Answer 34

Simplified representation used to better understand a real-life situation

Question 35

Other things equal assumption

Answer 35

All other relevant factors remain unchanged (also known as the ceteris paribus assumption)

Question 36

Trade-off

Answer 36

Give up something in order to have something else

Question 37

Production possibilities curve (PPC)

Answer 37

Illustrates the trade-offs facing an economy that produces only 2 goods, and shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced

Question 38

Efficient

Answer 38

No way for anyone in an economy to be better off without making at least 1 person worse off

Question 39

Technology

Answer 39

Technical means for producing goods and services

Question 40

Trade

Answer 40

Providing goods and services to receive goods and services in return

Question 41

Gains from trade

Answer 41

People can get more of what they want through trade than they could if they tried to be self-sufficient (due to specialization)

Question 42

Specialization

Answer 42

Each person specializes in the task that he or she is good at performing

Question 43

Comparative advantage

Answer 43

An individual has this in producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people

Question 44

Absolute advantage

Answer 44

An individual has this in producing a good or service if he or she can make more of it with a given amount of time and resources (not the same thing as a comparative advantage)