Wealth Creation, Free Exchange, and the Free Market System (Module 1)

Question 1

What is economics

Answer 1

“Economics is the study of the use of scarce resources that have alternative uses.”

Question 2

Describe the problem of Scarcity

Answer 2

Scarcity is when we want more than we can get. We want to buy something outside of our budget so instead we need to utilize what resources we have now.

Question 3

Explain the difference between Incentives and goals

Answer 3

We must evaluate economic decisions by considering the incentives they create rather than simply the goals they pursue.
Goals alone have little or no consequences. Incentives do!

Question 4

Describe how wealth is created

Answer 4

Wealth is created when resources move from lower to higher valued uses

Question 5

what is a property right?

Answer 5

The right to use a good or service as you wish is called a property right.

Question 6

What are different economies?

Answer 6

essentially different ways of making decisions about how scarce resources are allocated.

Question 7

Economy

Answer 7

A system for the production and distribution of the goods and services that we use in everyday life.

Question 8

the role of economics/ the fundamental question of economics is..

Answer 8

whether the decisions that are made in various parts of the economy lower or raise the standard of living of the people as a whole.

Question 9

When analyzing a particular market or industry, the question becomes whether the it can bring up the…

Answer 9

standard of living of the people as a whole

Question 10

When analyzing a particular market or industry, the question becomes whether the outcome maximizes the

Answer 10

potential gains of the participants in that market as a whole.

Question 11

When analyzing the decisions of a business or its management, the question becomes whether decisions are made to maximize the long term

Answer 11

productivity of the business

Question 12

One issue that arises when looking at economic outcomes is what role should

Answer 12

government institutions play.

Question 13

In analyzing incentives, economists assume that people act rationally, optimally, and in their self-interest, what we call the

Answer 13

rational-actor paradigm. to change behavior you have to change incentives.

Question 14

what is an opportunity cost?

Answer 14

When you have to choose among many alternatives, the foregone alternative with the highest value is the opportunity cost of making a decision.

Question 15

The biggest advantage of capitalism over other ways of allocating resources is that it creates wealth by giving people the freedom to pursue their own interests and enter

Answer 15

voluntary exchanges like this one.

Question 16

what scottish philosopoher is considered the father of modern economics because of his book: An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776, was an early and very influential argument for the free market system and the importance of prices.

Answer 16

Adam Smith

Question 17

Subsidies Reduce Wealth

Answer 17

Subsidizing the consumption of a certain good means producing more of it than would be produced in a free market, and therefore more than consumers really value.

Question 18

Price Controls Reduce Wealth

Answer 18

Price controls also distort the natural allocation of resources that would normally create wealth.

Question 19

black markets

Answer 19

Black markets are unofficial markets that bypass some of the costs imposed by excessive regulation, lack of property rights, or price controls.