week 1 (chapter 1, chapter 2)

Question 1

society

Answer 1

decisions of firms and how they are made

Question 2

economic agents

Answer 2

how decisions are made throughout society and how agents make these decisions

Question 3

households

Answer 3

decisions of individuals, and how they are made

Question 4

economics

Answer 4

the study of how society manages its scarce resources

Question 5

scarcity

Answer 5

the limited nature of societys resources

Question 6

microeconomics

Answer 6

the study of how households and firms
1. make decisions
2. interact in markets

Question 7

macroeconomics

Answer 7

the study of the economy on a whole

Question 8

economics

Answer 8

how people make decisions and the forces and trends that affect the economy as a whole

Question 9

incentives

Answer 9

something that induces a person to act, i.e. the prospect of a reward or punishment

Question 10

what do rational people respond to?

Answer 10

incentives
- self interest is an important incentive

Question 11

market

Answer 11

a group of buyers and sellers

Question 12

market economy

Answer 12

system that allocates resources through decentralized decisions of many households and firms as they interact in markets

Question 13

what is the invisible hand?

Answer 13

prices guide self interested households and firms to make decisions, that maximize society’s economic well being

Question 14

corollary

Answer 14

government intervention
- prevents the invisible hand’s ability to coordinate the decisions of the households and firms that make up the economy

Question 15

efficiency

Answer 15

when society gets the most from its scarce resources
- we tend to squeeze the most out of our resources than is optimal for the future

Question 16

equality

Answer 16

when prosperity is distributed uniformly among society’s members

Question 17

tradeoff

Answer 17

comparing the costs and benefits of alternative choices

Question 18

opportunity cost

Answer 18

whatever must be given up to obtain any item

Question 19

rational people

Answer 19

systematically and purposefully do the best they can to achieve their objectives
- take action if the marginal benefit outweighs the marginal cost

Question 20

marginal benefit

Answer 20

what is the gain that you would make if you spent an additional dollar
- how much more of a benefit would you obtain?

Question 21

marginal cost

Answer 21

what is the cost that i would gain if you spent an additional dollar
- how much more of a cost would you obtain?

Question 22

productivity

Answer 22

the amount of goods and services produced per unit of labor
- depends on the equipment, skills, and technology available to workers

Question 23

market failure

Answer 23

when the market fails to allocate society’s resources efficiently

Question 24

causes of market failure

Answer 24

externalities
market power

Question 25

externalities

Answer 25

when the production or consumption of a good affects bystanders (e.g.) pollution

Question 26

market power

Answer 26

a single buyer or seller has substantial influence on market price (e.g. monopoly)

Question 27

fiscal policy

Answer 27

the use of government revenue collection (taxation) and expenditure (spending) to influence the economy
- done to smooth out downturn

Question 28

monetary policy

Answer 28

the process by which the government controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability

Question 29

inflation

Answer 29

increase in the general level of prices

Question 30

production possibility frontier

Answer 30

shows how the combinations of two goods the economy can possibly produce, given available resources and available technology

Question 31

comparative advantage

Answer 31

the ability to produce a good at a lower opportunity cost than another producer
- using the gradient of the PPF (slope) tells you how much of one thing you are giving up to produce another

Question 32

what can shift a PPF

Answer 32

improvements in technology, increase in number of laborers, new forced migration, relaxed immigration laws, etc.

Question 33

why can the PPF be bow shaped

Answer 33

not every worker produces both goods at the same rate

Question 34

positive statements

Answer 34

describes a relationship, could use data to confirm or refute
ex. the government should print less money

Question 35

normative statements

Answer 35

value judgement that cannot be confirmed or refuted
ex. an increase in the price of burritos will cause an increase in consumer demand for music downloads