Ch 1-2

Question 1

Macroeconomics

Answer 1

Study the economy as a whole

Question 2

Economics

Answer 2

Study of how people choose between alternatives.

Question 3

Scarcity

Answer 3

Having to chose between two alternatives.

Ex. Choosing a use for land.

Question 4

Issues in macroeconomics

Answer 4

1. What should be produced?
2. How should it be produced?
3. For whom?

Question 5

Opportunity cost

Answer 5

The value of the best alternative forgone in any choice

Question 6

Free good

Answer 6

A good not limited by choice.

Gravity

Question 7

Features of economist approach

Answer 7

1. Emphasis on opportunity cost
2. Choices are made to maximize value for own self interest
3. Individuals pay attention to the small effects of decisions.

Question 8

Choice at the margin

Answer 8

Choices involving a little more or a little less

Question 9

Microeconomics

Answer 9

Choices made by individual d cushion making units

Question 10

Variable

Answer 10

Value can change

Question 11

Constant

Answer 11

Value does not change

Question 12

Model

Answer 12

Set of simplifying assumptions about an aspect of the world

Question 13

Ceteris peribus

Answer 13

All other things unchanged.

Question 14

Fallacy of false cause

Answer 14

Incorrect conclusion that one event causes another because they tend to occur together.

Question 15

Positive statement

Answer 15

Statement of fact or hypothesis.

Question 16

Normative statement

Answer 16

Makes value judgment

Question 17

Production possibilities model

Answer 17

1. Shows goods and services any economy is capable of producing.
2. Possibilities given factors of production and available technology.
3. Specifies using resources effectively.

Question 18

Economic system

Answer 18

Rules that define how resources are owned and decisions on use are made.

Question 19

Factors of Production

Answer 19

1. Labor-human effort
2. Capital- produced for use in other goods/services
3. Natural resources

Question 20

Utility

Answer 20

Value/satisfaction people derive from goods/services

Question 21

Human Capital

Answer 21

Skills as a worker Crome education, training, or experience.

Question 22

2 ways to increase labor available

Answer 22

1. Increase total labor force by # or # of hours worked

2. Increase human capital

Question 23

Financial capital

Answer 23

Money or other “paper resources”

Question 24

Methods of Resource Expansion

Answer 24

1. Discover new natural resources
2. Discover new uses of resources
3. Discover new uses of extraction

Question 25

Production Possibilities Curve

Answer 25

Graphical representation of alternative combinations of goods an economy can produce.

Question 26

Comparative Advantage

Answer 26

Producing a good if he opportunity cost is lower for that economy than any other.

Question 27

Law of Increasing Opportunity Cost

Answer 27

As an economy moves along the production possibilities curve to producing more of one good, opportunity cost of units increases.

Resources are not perfectly interchangeable

Question 28

Production Possibilities Model Categories

Answer 28

1. Land
2. Labor
3. Capital (means of production)
4. Entrepreneurship

Question 29

Characteristics of Society

Answer 29

1. Initial endowment (scarce resources)
2. Unlimited wants
3. Facilitating factors

Question 30

Production Possibilities Model Assumptions

Answer 30

1. Two good economy
2. Same resources needed to make both goods
3. State of tech and supply of resources fixed
4. Resources employed efficiently

Question 31

Things that shift production possibilities curve

Answer 31

1. Technology
2. Labor
3. Capital
4. Resources

Question 32

Market capitalist economy

Answer 32

Resources owned by private entities with decision making power.

Question 33

Command socialist economy

Answer 33

Government is primary owner of capital and recourses with broad powers to allocate resources.

Question 34

Mixed economy

Answer 34

Government can impose rules/regulations on use of resources.

Question 35

Specialization

Answer 35

Company is producing goods where it has comparative advantage

Question 36

Absolute advantage

Answer 36

Ability of individual group to carry out economic activity more than another.