Week 3

Question 1

Who is Adam Smith?

Answer 1

the father of modern economics

Question 2

What did Adam Smith say about the wealth in a country?

Answer 2

the wealth of a country consists not in its gold and silver only, but in its lands, houses, and consumable goods of all different kinds; we are wealthy if we are able to consume valuable stuff

Question 3

How is value created?

Answer 3

through production and through trade

Question 4

What does the production process do?

Answer 4

turns inputs into consumable outputs

Question 5

What are consumable outputs?

Answer 5

goods and services

Question 6

What are the four resources/inputs that we use in production?

Answer 6

1) natural resources
2) labor
3) capital
4) entrepreneurship

Question 7

What is the definition of natural resources?

Answer 7

tangible, but not produced by anyone

Question 8

What is the definition of labor?

Answer 8

physical and mental talents, applies to production

Question 9

What is the definition of capital?

Answer 9

produced means of production

Question 10

What is the definition of entrepreneurship?

Answer 10

risk taking/risk barring and innovation

Question 11

What is the cost of natural resources?

Answer 11

Rent

Question 12

What is the cost of labor?

Answer 12

Wage

Question 13

What is the cost of capital?

Answer 13

Interest

Question 14

What is the cost of entrepreneurship?

Answer 14

Profit

Question 15

What do we call “the spontaneous order of the world economy”?

Answer 15

“the engine”

Question 16

What is technology?

Answer 16

the way that inputs are combined to produce outputs

Question 17

What is make work fallacy?

Answer 17

the idea that jobs are valuable, whether or not the labor’s production adds value

Question 18

What does PPF stand for?

Answer 18

Production possibilities frontier

Question 19

What is the PPF?

Answer 19

a simplified way of understanding the production trade offs that are made in an economy

Question 20

What three things do the PPF models assume?

Answer 20

1) only two goods are produced over some time period
2) some fixed amount of resources is used
3) a given technology is used

Question 21

law of increasing opportunity cost (LIOC)

Answer 21

as more of one good is produced, the opportunity cost of producing a unit of that good rises, in terms of the other good which must be sacrificed

Question 22

What does the LIOC apply to?

Answer 22

trade off between all real world goods

Question 23

What results in the law of increasing opportunity cost?

Answer 23

Applying the principle of optimal arrangement to the production of two goods where resources are not all the same

Question 24

What is economic growth?

Answer 24

an expansion of an economies productive capabilites

Question 25

What three things does income and wealth depend on?

Answer 25

1) quantity of resources
2) quality of resources
3) freedom to use those resources

Question 26

What is human capital?

Answer 26

Human capital is when one gains development within themselves. For example, when they become educated at school, or at a job. When they invest in themselves, they are producing human capital

Question 27

What is physical capital?

Answer 27

buying “the produced means of production” from someone else

Ex. purchasing a new Mercedes will uplift your “physical capital”

Question 28

What is the invisible hand?

Answer 28

It refers to the actions one takes to promote themselves that actually promotes the economy and world as a whole. (spontaneous order, in the way that given freedom, things will fall in place as they should.)

Question 29

The engine plus the price system…

Answer 29

makes up production

Question 30

What is included in the price system?

Answer 30

preference of consumers, incentives for working together and scarcity of resources