Chapter 1

Question 1

Economics

Answer 1

Discipline that studies how efficient decisions are made

Question 2

Efficient Decisions

Answer 2

Choosing the most valuable alternative

Question 3

Theory of Revealed Preference

Answer 3

Our choices reveal our values

Question 4

3 Characteristics of Value

Answer 4

1. Value depends on the situation
2. Value is different for different people
3. Subsequent units of some good have lesser value

Question 5

Optimal Arrangement Principle

Answer 5

The most valued good is always our first choice, the next most valued is our second, and so on.

Question 6

Value of something to an individual

Answer 6

What one is willing to sacrifice or exchange in order to acquire something else

Question 7

Why do we value money?

Answer 7

We value money for what we can get in exchange with it.

Question 8

Cost

Answer 8

Value of the best alternative that we sacrifice when an economic choices made

Question 9

No Free Lunch

Answer 9

Decisions have at least two alternatives and one must be chosen and one must be sacrificed. The alternative that we sacrifice involves cost due to us sacrificing it.

Question 10

Macroeconomics

Answer 10

Study of all economies using concept of total output, national debt, unemployment rates, and total investments. It is the LARGE study of economy!

Question 11

Scarcity

Answer 11

When there is more wants than resources to satisfy those wants

Question 12

Goods

Answer 12

Roads, computers, cars

Question 13

Services

Answer 13

Police protection, firefighters

Question 14

Marginal Value

Answer 14

Value of an individual unit

Question 15

Marginal Analysis

Answer 15

Relationship between economic variables (cost & value).

Marginal value is at least as great as marginal cost.

Question 16

Law of Diminishing Returns

Answer 16

Adding more individuals to a work area decreases productivity due to the excess of people in the small work area.

Question 17

Demand

Answer 17

Relationship between possible prices and quantities that people are willing to purchase

Question 18

Supply

Answer 18

Relationship between possible prices and quantities people are willing to sell

Question 19

Equilibrium Price

Answer 19

When supply and demand is intersects (is equal). Consumers can buy all they want and producers can sell all they want.

Question 20

Social Gain (Marginal Social Gain)

Answer 20

SG=MV-MC

Social Gain= Marginal Value-Marginal Cost

Question 21

Consumer’s Gain

Answer 21

Total Value-Total Amount Paid

Question 22

Producer’s Gain

Answer 22

Total Amount Paid-Total Cost

Question 23

Economic Problem

Answer 23

Allocating scarce resources to their best uses

Question 24

Changes in supply…

Answer 24

Shift supply curve

Question 25

Changes in demand…

Answer 25

Shift demand curve

Question 26

Does destruction create profit ? (Bastiat’s Chapter 1)

Answer 26

According to Bastiat, destruction does not create profit. For example Bastiat gives us James Goodfellow and his broken window scenerio. Goodfellow cannot enjoy a new book, or another good, because he has to repair the window. When the window was destroyed, he had a loss. By fixing it, his money went to the repair instead of to a new manufacturer. The manufacturer was discouraged by Goodfellow giving his money to the repair shop, so he loss that income. There was no profit because the window was once good and by destroying there was a loss and by repairing it the economy received money, which just balanced it all out.

Question 27

What does Bastiat say about different workers? (Chapter 4)

Answer 27

He says that different workers are taking into consideration at different levels. For example, thearetical jobs, which are for entertainment, are paid more than workers that are critical to our economy. He also says that taxing of the working class creates enough to pay another job (or class).

Question 28

Should government subsidize Arts and Theatre? (Bastiat: Chapter 4)

Answer 28

No, because even though the theatre shapes some cultures and communities, it is only for entertainment. Government subsidizing could go towards something more valuable.