Week 1: introduction; brief history of economic thought

Question 1

What is economics?

Answer 1

• study of how to distribute scarce resources to make choices
• study of systems
• involves: society, trends, capitalism

Question 2

3 basic questions any society must answer

Answer 2

• what to produce
• how to produce
• for whom to produce

Question 3

Middle Ages (400 to 1500)

Answer 3

• vassels
• peasants (don’t pay rent to lord just give 20% of their crops)
• feudalism (came before capitalism)

Question 4

Feudalism

Answer 4

people worked and fought for nobles who gave them protection and land in return

Question 5

Mercantilism (1400 to 1800)

Answer 5

who ever had the most gold and sliver had the most power

Question 6

increase in production

Answer 6

= decrease in prices

Question 7

Austrian School

Answer 7

• Chicago School
• methodological individualism

Question 8

Methodological Individualism

Answer 8

physics of behaviour of an individual from their pov

Question 9

Keynesian Economics

Answer 9

• involuntary unemployment and underspending had become long-lasting problems during the Depression
• aggregate demand

Question 10

Aggregate Demand

Answer 10

• relationship between the general price level and total spending in the economy
• determines the connections among inflation, unemployment, levels of spending, and real output

Question 11

Assumptions Economists Make

Answer 11

• ultimately make unrealistic assumptions about human behaviour
• individuals act so as to maximize their own utility
• people are rational
• economics deals with the economic problem

Question 12

Individuals act so as to maximize their own utility

Answer 12

• decision-makers must keep in mind the opportunity cost of each alternative
• looking for the best option
• opportunity cost
• good to others to be perceived as good

Question 13

opportunity cost

Answer 13

the utility of the best forgone alternative

Question 14

People are rational

Answer 14

• make choices by weighing the personal benefits and costs of available actions, they then select most attractive option
• make consistent choices

Question 15

Economics deals with the economic problem

Answer 15

• a.k.a. the demand assumption (unlimited demand)
• economic agents must continually make choices
• their wants are unlimited
• they face a limited supply of economic resources
• people are driven forward (always want new things)
• pro: innovation con: limited resources

Question 16

Economic Resources

Answer 16

• Natural resources
• Capital resources
• Human resources

Question 17

Natural resources

Answer 17

or nature’s contribution to production

ex. coal, oil, sand

Question 18

Capital resources

Answer 18

the processed materials, tools, equipment, and buildings used in production

Question 19

Human resources

Answer 19

• Labour
• Entrepreneurship

Question 20

Labour

Answer 20

• human effort employed directly in production
• work for salary
• produce a good or service