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Flashcards in Chapter 1 Deck (33):
1

Economics is

the study of how efficient decisions are made.

2

Efficient decisions involve

choosing the best alternative.

3

The theory of revealed preference

is the principle that choices reveal our values.

4

The three characteristics of value are

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

5

The idea that we choose the best, then the second best, etc

is the Principle of Optimal arrangement

6

Why do subsequent units of something have less value?

The POA and the Pizza effect.

7

How do Economists find the value of clean air?

By studying prices of similar houses in neighborhoods with varying pollution.

8

How do economists find the value of an individual's life?

By finding how much a worker will accept to take a more dangerous job.

9

What is value for an individual?

Maximum willingness to pay, or, if the individual owns it, it is the least the individual is willing to accept for that thing.

10

How do economists find the value of a potential child?

By looking at how much time and money must be sacrificed by the parents to have a child.

11

Most people would say there are some things beyond price,

but Economists think, with certainty, that nothing is beyond price.

12

The only reason we value dollars is because

of the stuff we exchange them for (goods and services).

13

Cost

is the value of the best alternative sacrificed when decisions are made.

14

The no free lunch principle means that

any decision has at least two alternatives and, since you are making a decision, cost exists.

15

Macroeconomics is

the study of total economies.

16

Scarcity is

having more desires than can be satisfied.

17

The marginal value of something is

the value of the individual units of that thing.

18

How are decisions made using marginal analysis?

Take action if marginal value is at least as great as marginal cost.

19

If a good is consumed at zero cost, how man units will be consumed?

Until marginal value equals zero.

20

Why does marginal cost rise as more is consumed?

POA; When the consumer purchases something, they sacrifice the least valuable alternative first, then the second, etc.

21

The law of diminishing returns states

that as you add more workers in a production facility, they eventually become less productive because everyone can't take part in the production process.

22

Are jobs benefits or costs to society?

Both. Labor has costs (wages) and gives benefits.

23

As production increases,

marginal cost rises.

24

Demand is

the relationship between price and units desired for purchase, other things equal.

25

The demand curve is

the same as the marginal value curve.

26

Supply is

the relationship between the price of something and the quantities that firms are willing to sell.

27

At high prices

produces are willing to supply, but consumers are less willing to buy.

28

At the equilibrium price,

consumers can buy all that they want, and producers can supply all that they want.

29

Social gain

equals total value minus total cost.

30

Consumer gain

equals total value minus price paid.

31

Producer's gain

equals total amount paid minus total cost.

32

As long as prices are free to adjust

shortages and surpluses are eliminated.

33

When supply falls, what effects do we see in the market?

Higher prices.