Unit 1 - Basic Economic Concepts - DONE

Question 1

Ceteris Paribus

Answer 1

“All else equal” - used as a basis to compare things and models

Question 2

GDP

Answer 2

Gross Domestic Profit (all of the money that passes a point in a circular flow model in a year)

Question 3

Command Economy

Answer 3

A system such as socialism in which the government makes all economic decisions

Question 4

Capitalism

(Free market economy)

Answer 4

A system where there is a free market and decisions are made on what can be sold for the most money and made for the least

Question 5

The basic economic problem

Answer 5

Scarcity - there are finite resources, but infinite human wants (people have to choose what to produce and consume)

Question 6

Opportunity Cost

Answer 6

The forgone benefit of the next best option when making a decision

Question 7

The three economic questions

Answer 7

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

Question 8

Three economic questions, command economy answers

Answer 8

1. What to produce? - What the government wants produced
2. How to produce? - How the government wants it produced
3. For whom to produce? - For everyone, equally

Question 9

Three economic questions, free market economy answers

Answer 9

1. What to produce? - What the consumers send signals to producers for
2. How to produce? - At the lowest cost possible
3. For whom to produce? - Consumers who have the money to buy

Question 10

The purpose of a production possibilities curve

Answer 10

To compare the ability to allocate resources for production

Question 11

PPC (ppf)

Answer 11

Production possibilities curve (frontier)

Question 12

The slope of the PPC is

Answer 12

Opportunity cost

Question 13

Factors of production definition

Answer 13

The things/resources that make production possible

Question 14

Factor Endowment

Answer 14

Amount of each factor of production a person, company, society, or country has, determining their ability to produce a given product

Question 15

Linear PPC

Answer 15

Perfectly transferrable resources

Question 16

Curved PPC

Answer 16

Not perfectly transferrable resources

Question 17

Absolute Advantage

Answer 17

When a country is able to produce more of a good or service than another country with the same amount of resources [higher up on PPC axis]

Question 18

Comparative advantage

Answer 18

When a country can produce a good at a lower opportunity cost (of another good) –> countries should specialize in these goods

Question 19

Terms of trade

Answer 19

The cost at which countries are willing to sell goods to one another

Question 20

Marginal Utility

Answer 20

The benefit gained from consumption of the next good or service

Question 21

Law of diminishing marginal utility

Answer 21

The consumption of each extra product results in a decrease in the amount of satisfaction gained

Question 22

Land

Answer 22

The factor of production encompassing: anything produced by nature, natural resources, paid rent

Question 23

Labor

Answer 23

The factor of production encompassing: time and effort of workers, paid wages

Question 24

Capital

Answer 24

The factor of production encompassing: anything produced before to produce in the future, machines, buildings, etc. , paid interest

Question 25

Entrepreneurship

Answer 25

The factor of production encompassing: creative ability to bring other factors of production together, paid profit

Question 26

Resource Allocation

Answer 26

Involves answering 3 questions: What goods and services to produce? How to produce? And who consumes those goods and services?

Question 27

Implicit Costs

Answer 27

Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur

Question 28

Explicit Costs

Answer 28

Input costs that require an outlay of money by the firm - actual spending

Question 29

Consumer Choice Theory

Answer 29

Relates consumers' wants and preferences to the goods and services they actually buy

Question 30

Marginal Cost

Answer 30

The additional benefit to a consumer from consuming one more unit of a good or service

Question 31

Marginal Analysis

Answer 31

Analysis that involves comparing marginal benefits (MB) and marginal costs (MC) - helps individuals (firms) decide whether to increase, decrease, or maintain their consumption (production) levels

Question 32

Optimal Quantity/Choice

Answer 32

Achieved when MB = MC or where total benefit is maximized

Question 33

Good

Answer 33

Goods are materials that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product.

Question 34

Service

Answer 34

A type of economic activity that is intangible, is not stored and does not result in ownership. A service is consumed at the point of sale.

Question 35

# PPC Unattainable

Answer 35

Outside PPC

Question 36

# PPC Inefficient

Answer 36

Inside PPC

Question 37

# PPC Efficient

Answer 37

On PPC

Question 38

Country Focused on future term growth

Answer 38

More focus on capital goods

Question 39

Marginal

Answer 39

Additional; the change that results from an additional unit

Question 40

Utility

Answer 40

Ability or capacity of a good or service to be useful and give satisfaction to someone

Question 41

Private Property

Answer 41

Free Market Economy - property owned by individuals or companies

Question 42

Utility maximizing rule

Answer 42

Equating the ratio of the marginal utility of a good to its price for all goods

Question 43

Marginal Utility Per Dollar

Answer 43

The additional utility from spending one more dollar on that good or service (MU/P)

Question 44

Causes of an outward shift of PPC

Answer 44

Change in resource quantity, quality; change in technology; change in trade

Question 45

Consumer Surplus

Answer 45

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it (benefit - cost)

Question 46

Total Utility (TU)

Answer 46

The total amount of satisfaction obtained from consumption of a good or service

Question 47

Cost-benefit analysis

Answer 47

A decision-making process in which you compare what you will sacrifice and gain by a specific action - MB = MC