Unit 1: Basic Economic Concepts

Question 1

Economics

Answer 1

Social Science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic want

Question 2

Economic Perspective

Answer 2

Way of thinking (focuses largely on marginal analysis —comparisons of marginal benefits and marginal costs, usually for decision making.)

Question 3

Marginal

Answer 3

To economists, “marginal” means “extra,” “additional,” or “a change in.”

Question 4

Utility (economic definition)

Answer 4

Satisfaction

Question 5

Positive Economics

Answer 5

“What is” - set in stone like a statistic

Question 6

Normative Economics

Answer 6

“What ought to be” - predictions

Question 7

Macroeconomics

Answer 7

Economy as a whole

Question 8

Microeconomics

Answer 8

Specific economic units (individual)

Question 9

Centeris paribus

Answer 9

• Other things equal assumption. - Explains the the effect of one economic variable on another, holding constant all other variables that may affect the second variable.

Question 10

The Economic Problem

Answer 10

* “There is no such thing as a free lunch” - Tinstaafl * Scarcity!!!!!!!!

Question 11

Scarcity

Answer 11

Limited resources are never sufficient to satisfy unlimited wants

Question 12

Three questions every economy has to answer! – related to scarcity (as well)

Answer 12

1. What to produce? 2. How to produce? 3. For whom to produce?

Question 13

Opportunity Cost

Answer 13

Alternative forgone in decision making (a tradeoff) – the next best option/alternative.

Question 14

Economic Resources - Factors of Production (Inputs)

Answer 14

1. Land (Rent) 2. Labor (Wages/Salary) 3. Capital (Interest) 4. Entrepreneur (Profit) - combines resources, makes decision, innovator, risk-taker.

Question 15

Money is a ________, not a factor of ________.

Answer 15

Money is a medium of EXCHANGE, not a factor of PRODUCTION

Question 16

Economic Goals

Answer 16

• Growth - Full employment (of all resources) - Efficiency - Price level sustainability - Equitable distribution of income - Security - Balance of Trade

Question 17

Allocative Efficiency (Eco. Goal)

Answer 17

Producing what society wants (through markets)

Question 18

Productive Efficiency (Eco. Goal)

Answer 18

How to produce the greatest amount at the lowest cost

Question 19

Faulty Economic Reasoning

Answer 19

1. Bias 2. Definition 3. Association implies causation – (** correlation does not = causation) 4. Faulty Ceteris Paribus

Question 20

Fallacy of Composition (Faulty Eco. Reasoning)

Answer 20

What works for one (country, industry, etc) does not work for everyone!!

Question 21

Production Possibilities Curve (PPC)

Answer 21

Shows the combination of two (2) goods or services that can be produced in an economy.

Question 22

Law of Increasing Opportunity Cost

Answer 22

To get more of one good, one gives up ever increasing quantities of another good (** curve is bowed outwards from origin **)

Question 23

Absolute Advantage

Answer 23

The country that can produce more of a goo (output) has an absolute advantage

Question 24

Comparative Advantage

Answer 24

The country or individual with the lowest opportunity cost has the comparative advantage, and should specialize in the production of that good or service

Question 25

Market (Economy)

Answer 25

Place where buyer and sellers come together

Question 26

Capitialism

Answer 26

Property rights. – An economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.

Question 27

Consumer Sovereignty

Answer 27

$ votes

Question 28

Circular Flow

Answer 28

System of incentives