Chapter 1

Question 1

scarcity

Answer 1

occurs when there is not enough of our “wants” at a zero price. means we never have enough of everything, including time, to satisfy our every desire. unlimited wants exceed limited resources.

Question 2

notes about scarcity

Answer 2

1. the most basic concept of economics
2. scarcity is a fact of life, was not invented by economists
3. all goods & services are scarce

Question 3

economics

Answer 3

the study of the choices people make to attain their goals, given their scarce recourses

Question 4

think of economics as

Answer 4

1. the study of how we deal with scarcity
2. the study of how we make choices

Question 5

with limited resources, people must make choices to satisfy their wants

Answer 5

people, firms, & governments must make these choices

Question 6

scarcity forces us to make choices. what is important about choices?

Answer 6

with each choice we make, we give up some alternative

Question 7

opportunity cost

Answer 7

the highest-valued, next-best alternative that must be sacrificed to obtain something or to satisfy a want or to engage in an activity

Question 8

“next best alternative”

Answer 8

is not the same as “all possible alternatives”

Question 9

what is the opportunity cost of coming to class?

Answer 9

1. sleeping
2. doing other work
   (ranking based on preference)

Question 10

opportunity cost of producing military goods

Answer 10

lost production on civilian goods

Question 11

goal of an individual

Answer 11

constrained optimization problem:
- make ourselves as best off as possible
how do I spend my money?

Question 12

3 assumptions about how people make choices

Answer 12

1. people are rational
2. people respond to economic incentives
3. optimal decisions are made at the margin

Question 13

being rational means

Answer 13

people try to gather info about a decision and make themselves better off

Question 14

rationality does NOT mean we are perfect and error free

Answer 14

1. may not have full info
2. be short-sighted
3. make math mistakes
4. have logical or psychological biases

Question 15

incentives

Answer 15

rewards or punishments for engaging in a particular activities

Question 16

if designed correctly, incentives will

Answer 16

change the behavior of individuals to whom the incentive is offered

Question 17

we strive to understand

Answer 17

1. how people respond to incentives
2. what types of incentives are created by economic policies

Question 18

marginal =

Answer 18

additional or extra

Question 19

MB

Answer 19

marginal benefit

Question 20

MC

Answer 20

marginal cost

Question 21

MB>MC

Answer 21

keep doing an activity because it will continue to make you better off

Question 22

MB=MC

Answer 22

stop doing the activity because you “absorb” all possible net gains

Question 23

MB<MC

Answer 23

never do an activity because you will continue to be worse off

Question 24

empirical

Answer 24

data, numbers, quantitative predictions

Question 25

models

Answer 25

simplified representations of the real world used as the basis for predictions or explanations

Question 26

goal of a model

Answer 26

1. traceable 2. easy to understand 3. explains & accurately predicts outcomes

Question 27

economic models

Answer 27

need to be built on a series of assumptions

Question 28

assumptions

Answer 28

the set of circumstances in which a model is applicable

Question 29

"ceteris paribus" assumption

Answer 29

latin for "all other things equal" goal: focus on what happens if we change a single variable

Question 30

positive economics

Answer 30

written in a way that allows it to be proven true or false

Question 31

normative economics

Answer 31

opinion based statement that cannot be proven true or false

Question 32

microeconomics

Answer 32

the study of decision making undertaken by individuals

Question 33

microeconomics individual

Answer 33

work overtime or not?

Question 34

microeconomics family

Answer 34

public or private school?

Question 35

microeconomics firm

Answer 35

should we lower prices?

Question 36

macroeconomics

Answer 36

the study of the behavior of the economy as a whole

Question 37

macroeconomics deals with

Answer 37

1. the national unemployment rate 2. interest rates 3. the rate of inflation 4. the national government budget deficit 5. monetary & fiscal policy

Question 38

more on macroeconomics

Answer 38

1. deals with aggregates, or totals such as total output in an economy 2. all the micro-decisions add up to become the macroeconomy

Question 39

macro and micro concepts blend

Answer 39

cannot completely isolate one without the other

Question 40

time series graph

Answer 40

important for viewing real-world data over time and find trends