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1) what, and how much, to produce 2) how to produce it 3) for whom to produce it scarcity

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three coordination problems any economy must solve are... The problem in solving these problems is ____

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microeconomics

answer

the study of individual choice and how that choice is influenced by economic forces

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macroeconomics

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the study of the economy as a whole. Considers inflation, unemployment, business cycles, and growth

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cost/benefit framework

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If the marginal benefits of doing something exceed the marginal costs, do it

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sunk costs

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costs that are not relevant in the economic decision rule

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opportunity cost

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the cost of undertaking an activity is the benefit you might have gained from choosing the next-best alternative

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opportunity cost

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"There ain't no such thing as a free lunch" (TANSTAAFL) embodies the ___ ___ concept

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scarcity

answer

Economic forces, the forces of ____, are always working.

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market

answer

____ forces, which ration by changing prices, are not always allowed to work

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economic forces (the invisible hand), political & legal forces, and social & cultural forces

answer

Economic reality is controlled and directed by 3 types of forces:

question

price

answer

Under certain conditions, the market, through it's ____ mechanism, will allocate scarce resources efficiently

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theorem

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propositions that follow from the assumptions of a model

question

precepts

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the guides for policies based on theorems, normative judgments, and empirical observations about how the real world differs from the model

question

positive economics, normative economics, and the art of economics

answer

economics can be divided into three subdivisions

question

positive economics

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the study of what is

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normative economics

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the study of what should be

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the art of economics

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relates positive to normative economics

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the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society.

answer

What is economics?

question

scarcity

answer

the goods available are too few to satisfy individuals' desires

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our wants and our means of fulfilling these wants

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two elements of scarcity

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economics (basically)

answer

the study of how to get people to do things they're not wild about doing and not do things they are wild about doing, so that the things some people want to do are consistent with the things other people want to do

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microeconomics examples

answer

pricing policies of firms, households' decisions on what to buy, and how that choice is influences by economic forces

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macroeconomics example

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focuses on aggregate relationships such as how household consumption is related to income and how government policies can affect growth

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technology and human action

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the quantity of goods, services and usable resources depend on 2 things

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macro

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macro or micro: impact of a tax increase on aggregate output

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micro

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macro or micro: the relationship between two competing firms' pricing behavior

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micro

answer

macro or micro: a farmer's decision to plant soy or wheat

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macro

answer

macro or micro: the effect of trade on economic growth

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costs and benefits

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economic reasoning is making decisions on the basis of __ & ____

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marginal costs

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the additional cost to you over and above the costs you have already incurred

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sunk costs

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costs that have already been incurred and cannot be recovered

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marginal benefit

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the additional benefit above what you've already derived

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It doesn't matter. (The price bought is a sunken cost. What does matter is the future of the stock)

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You bought a stock for 100 and one for 10. Now they are both selling for $15? Which do you buy?

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cost

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Economic reasoning is based on the premise that everything has a ___

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No (The opportunity cost is primarily the time you spend reading it. The original price is a sunk cost.)

answer

Is the opportunity cost of reading this chapter, 1/38 the price of the book?

question

Ok. (The scarce good must be rationed by some means. Free health care has an opportunity cost in other resources. If it is not rationed, to get the resources to supply that care, other goods must have to be more tightly rationed that they are. It is likely the opportunity cost of supplying free health care would be larger than most societies would be willing to pay.)

answer

Explain free health care rationing.

question

By price

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How is food rationed?

question

economic

answer

rationing mechanisms are examples of ____ forces, the necessary reactions to scarcity

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market

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When an economic force operate through the market, it becomes a ____ force

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the invisible hand

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the price mechanism, the rise and fall of prices that guides our actions in a market

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someone paying someone to go on a date with him/her

answer

an example of social forces preventing an economic force from becoming a market force

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When adoption parents (the suppliers) have the power of something that's in short supply.

answer

An example of political and social forces working together against the invisible hand.

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market

answer

If babies were allowed to be bought, the ___ not the adoption agencies would be doing the rationing

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economic model

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a framework that places the generalized insights of the theory in a more specific contextual setting

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economic principle

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a commonly held economic insight states as a law of principle

question

experimental economics

answer

a branch of economics that studies the economy through controlled lab experiments

question

natural experiments

answer

naturally occurring events that approximate a controlled experiment where something has changed in one place but has not changed somewhere else

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theorems

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models lead to ____, propositions that are logically true based on the assumptions in a model

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precepts

answer

theorems arrive at policy ____, policy rules that conclude that a particular course of action is preferable

question

a precept

answer

definition: a general rule intended to regulate behavior

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effiency

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means achieving a goal as cheaply as possible

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invisible hand theorem

answer

a market economy, through the price mechanism, will tend to allocate resources efficiently

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theory

answer

a shorthand way of telling a story

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economic institutions

answer

laws, common practices, and cultural norms are all examples of economic insitutitions

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examples of economic insititutions

answer

corporations, governments, and cultural norms

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economic policies

answer

actions of inaction taken by government to influence economic actions

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institutions (example: single parents and income from government)

answer

to carry out economic policy effectively, one must understand how ___ might change as a result

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No (they may have the largest gain but they may also have the largest cost. Economists should focus on largest net gain)

answer

Should economist focus their policy analysis on institutional changes because such policies offer the largest gains?

question

No it is too abstract

answer

Does economic theory provide definitive policy recommendations?

question

No (The theorem is a positive theorem and does not tell us anything about policy.)

answer

Does the invisible hand theorem tell us that the government should not interfere with the economy?

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positive

answer

How does the market for hog bellies work? is a question of ___ economics

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normative

answer

What should the distribution of income be? is a question of ____ economics

question

art of economics

answer

also called political economy

question

art

answer

To achieve the goals society wants to succeed, how would you go about it given the way the economy works? is a question of the ____ of economics

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incentives

answer

If you want to change the result, change the ___ that individuals face

question

Normative

answer

Positive, normative, or art of economics? We should support the market because it is efficient.

question

Positive

answer

Positive, normative, or art of economics? Given certain conditions, the market achieves efficient results.

question

Art of economics

answer

Positive, normative, or art of economics? Based on past experience and our understanding of markets, if one wants a reasonably efficient result, markets should probably be relied on.

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Normative

answer

Positive, normative, or art of economics? The distribution of income should be left to markets.

question

Positive

answer

Positive, normative, or art of economics? Markets allocate income according to contributions of factors of production.

question

production possibility table

answer

a table that lists the trade-offs between two choices

question

production possibility curve (PPC)

answer

a curve measuring the maximum combination of outputs that can be obtained from a given number of inputs

question

What the Production possibility curve demonstrates

answer

1. There is a limit to what you can achieve, given the existing institutions, resources, and technology. 2. Every choice you make has an opportunity cost. You can get more of something only by giving up something else.

question

slope

answer

the ___ of the PPC tells you the trade-off between the cost of one good in terms of another

question

increasing marginal opportunity

answer

the principle of ___ ____ ____ tells us that opportunity costs increase the more you concentrate on the activity

question

comparative advantage

answer

better suited to the production of one good than to the production of another good

question

straight line

answer

if the opportunity cost doesn't change, the PPC is shaped as a ___ ___

question

productive efficiency

answer

achieving as much output as possible from a given amount of inputs or resources

question

inefficiency

answer

getting less output from inputs that, if devoted to some other activity would produce more output

question

comparative advantage

answer

the reason for the bowed out curve in the PPC is ____ ____

question

trade

answer

Adam Smith argued that it is humankind's proclivity to _____ that leads to individuals using their comparative advantage

question

laissez-faire

answer

an economic policy of leaving coordination of individuals' actions to the market

question

precept

answer

laissez-faire is a ____ not a theorem

question

globalization

answer

the increasing integration of economies, cultures, and institutions across the world

question

competitors

answer

the global economy increases the number of ____for the firm

question

More trade & specialization (which allows lost cost producer to produce)

answer

How does globalization reduce costs of production?

question

law of one price

answer

the wages of workers in one country will not differ significantly from the wages of (equal) workers in another institutionally similar country

question

inversely

answer

the law of demand states that the quantity is ___ related to the good's price

question

demand

answer

refers to a schedule of quantities of a good that will be bought per unit of time at various prices, other things constant

question

quantity demanded

answer

refers to a specific amount that will be demanded per unit of time at a specific price, other things constant

question

quantity

answer

demand is different than ____ demand, which refers to movement along the demand curve

question

shift in demand

answer

the graphical representation of the effect of anything other than price on demand

question

shift factors of demand

answer

society's income, prices of other goods, tastes, expectations, taxes and subsidies

question

market demand curve

answer

the horizontal sum of all individual demand curves

question

Law of demand's two phenomena

answer

1. At lower prices, existing demanders buy more. 2. At lower prices, new demanders enter the market.

question

time

answer

on a demand curve, the horizontal axis quantity has a ____ dimension

question

supply

answer

the law of ____ is based on substitution and the expectation of profits

question

supply

answer

a schedule of quantities a seller is willing to sell per unit of time at various prices, other things constant

question

quantity supplied

answer

a specific amount that will be supplied at a specific price

question

shift factors of supply

answer

price of inputs, technology, expectations, taxes and subsidies

question

Law of supply's two phenomena

answer

1. At higher prices, existing suppliers supply more. 2. At higher prices, new suppliers enter the market.

question

equilibrium quantity

answer

the amount bought and sold at the equilibrium price

question

equilibrium price

answer

the price toward which the invisible hand drives the market

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