Ch 1: Economics – Foundations and Models – Flashcards
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All of the following are economic resources except:
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Money
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The difference between microeconomics and macroeconomics is mainly a difference between:
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The study of household and firm behavior versus the study of the economy as a whole.
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Which of the following statements best describes scarcity?
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Scarcity is a situation where unlimited wants exceed limited resources.
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Which of the following best describes the characteristics of models used in economics?
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Economic Models are simplifications of reality that include only essential elements and exclude less relevant details.
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Which sort of thinking goes on in the mind of a hungry economist who is using marginal analysis to satisfy his hunger by eating potato chips?
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The economist will stop after each additional chip is consumed and examine the benefit and cost of that potato chip before continuing on to the next one.
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Under which of the categories below is the idea that people use all available information as they achieve their goals?
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People are rational.
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Which of the following is not among the fundamental economic questions that every society must solve?
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What goods and services will be exchanged?
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Throughout most of the twentieth century, which of the following was the most important centrally planned economy in the world?
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The Soviet Union
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A market economy is an economy in which the decisions of households and firms interacting in markets determine _____.
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The allocation of economic resources.
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Which of the following questions is a normative question?
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Should the college charge lower tuition to smarter students?
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Let V1 equal a value in period one, and V2 equal a value in period 2. What is the rate of growth between periods 1 and 2?
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[(V2 - V1)/V1] x 100
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Scarcity
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A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
Because resources are limited, the amount of output that can be produced is also limited.
Scarcity forces choices.
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Economics
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The study of these choices. People make choices as they try to attain their goals. Choices are necessary because we live in a world of scarcity.
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Opportunity Cost
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What we sacrifice as the consequence of our decisions. The highest-valued alternative given up in order to engage in some activity.
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Marginal Analysis
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The decision to choose one alternative over another by comparing marginal cost (MC) and marginal benefit (MB).
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Trade-off
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An increase in the production of one good requires the reduction in the production of some other good. Resulting from the scarcity of productive resources.
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Centrally Planned Economies
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When governments decide what to produce, how to produce it, and who receives the goods and services.
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Market Economies
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When the decisions of households and firms determine what is produced, how it is produced, and who receives the goods and services.
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Market
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A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
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Mixed Economies
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Features of both of the above. Most economic decisions result from the interaction of buyers and sellers, but governments play a significant role in the allocation of resources.
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Voluntary Exchange
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Transactions that make both the buyer and seller better off.
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Positive Analysis
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the study of "what is?" (what economists generally perform)
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Normative Analysis
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the study of "what ought to be?"
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What determines the market price?
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Supply and demand together.
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What are the 4 economic resources?
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Land, labor, physical capitol, and entreprenuers
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Efficiency
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Maximize the size of our economic pies; Getting the most that we can out of our scare resources.
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Equity
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Distribution; how the pie is divided among different members of the society.
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Which of the 3 types of economies are the most efficient?
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Market economies
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What do market economies promote?
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productive & allocative efficiency
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Whose market economies reach its most efficient outcome if there is competition?
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Adam Smith
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Public goods are
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non-excludable and non-rival (Excludable: a person can be prevented from using it; Rival: one person's use diminishes other people's use)
