Chapter 1

Question 1

Economics Definition

Answer 1

The study of how individuals, businesses and institutions make social choices to optimize their level of satisfaction under conditions of scarcity.

Question 2

Scarce economic resources

Answer 2

Limited goods and services

Question 3

Opportunity Cost

Answer 3

The opportunity cost of an activity is the value of the next best alternative that must be forgone in order to undertake this activity.

Question 4

Economists assume that human behaviour reflects:

Answer 4

rational self-interest

Question 5

Rational Behaviour

Answer 5

To maximize their level of satisfaction/utility. Not free from mistakes nor unaffected by emotions.

Question 6

Utility

Answer 6

The pleasure, happiness, or satisfaction obtained from consuming a good or service.

Question 7

Cardinal Utility

Answer 7

Utility measurable in numerical terms (e.g. 10 utils)

Question 8

Ordinal Utility

Answer 8

Utility measured by comparisons

Question 9

Rational Consumers

Answer 9

Someone with unlimited wants/needs who maximizes utility subject to a budget constraint.

Question 10

Optimal Behaviour

Answer 10

Calculation, negotiation, expenditure

Question 11

Rational Producer

Answer 11

A producer seeks to maximize profit subject to cost constraints with certain production techniques

Question 12

Marginal analysis compares:

Answer 12

marginal benefits and marginal costs

Question 13

Marginal analysis

Answer 13

In a world of scarcity, the decision to obtain the marginal benefit associated with some specific option always includes the marginal cost of forgoing something else.

Question 14

Economics relies on:

Answer 14

a scientific method.

Question 15

Economic Principles

Answer 15

Tools for ascertaining cause and effect in order to analyze economic behaviour and understand how the economy operates.

Question 16

Economic principles are:

Answer 16

Generalizations

Question 17

Generalizations

Answer 17

Economic principles are expressed as the tendencies of typical or average consumers, workers or business firms.

Question 18

Other-things-equal assumption (Latin)

Answer 18

Ceteris Paribus

Question 19

Other-things-equal assumption meaning

Answer 19

The assumption that all variables except those under immediate consideration are held constant for a particular analysis. (Factors other than those being considered do not change)

Question 20

Graphical Expression

Answer 20

Many economic models are expressed graphically.

Question 21

Economists develop economic principles and models at two levels:

Answer 21

Macroeconomics and Microeconomics

Question 22

Macroeconomics

Answer 22

Examines either the economy as a whole or
its basic subdivisions or aggregates, such as the government, households and business sectors.

Question 23

Aggregate meaning

Answer 23

A collection of specific economic units treated as if they were one unit. Used to obtain an overview of economic structure.

Question 24

Microeconomics

Answer 24

Concerned with individual units such as a person, a household, a firm, or and industry.

Question 25

Positive Economics

Answer 25

Focuses on facts and cause-and-effect relationships. Includes description, theory development and theory testing. Avoids value judgements and tries to establish scientific statements. e.g. The inflation rate was 4.5% in February

Question 26

Normative Economics

Answer 26

Incorporates value judgements about what the economy should be like. Underlies expressions of support for particular economic policies. e.g. The economy will benefit if more people buy locally