Chapter 1 - Economic Decisions

Question 1

Economics

Answer 1

Discipline that studies how efficient decisions are made

Question 2

Efficient Decisions

Answer 2

Involve choosing the most valuable alternative

Question 3

Theory of Revealed Preference

Answer 3

Our choices reveal our values

Question 4

Characteristics of Value

Answer 4

Value depends on the situation

Value is different for different people

Subsequent units of the same good have less value

Question 5

Optimal Arrangement Principle

Answer 5

The idea that we first choose the best, then the second best, and so on

Question 6

Value of Something to an Individual

Answer 6

The most that individual is willing to sacrifice to obtain that something

Question 7

Cost

Answer 7

The value of the best alternative which is sacrificed when a decision is made

Costs may or may not involve spending money

Question 8

No Free Lunch Principle

Answer 8

Since any decision has at least two alternatives, choosing an alternative means that one must sacrifice at least one other alternative. That is, any decision involves costs

Question 9

Macroeconomics

Answer 9

The study of entire economies, using concepts like total output, the unemployment rate, the national debt, total investment

Question 10

Scarcity

Answer 10

Having more wants than our resources can satisfy

Question 11

Marginal Value of Something

Answer 11

The value of the individual units of that something

Question 12

Marginal Analysis

Answer 12

We consume each unit for which the marginal value is at least
as great as marginal cost

Question 13

True Shape of Marginal Costs II - The Producer

Answer 13

**ADD MORE*

So as production increases, marginal cost rises

Question 14

Law of Diminishing Returns

Answer 14

As we add workers to a production facility, eventually they become less productive because there’s no way
for everyone to take part in the production process

Question 15

Demand

Answer 15

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The relationship between the possible prices of something and the quantities people are willing to buy, all things being equal

Question 16

Supply

Answer 16

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The relationship between the possible prices of something and the quantities that people or firms
are willing and able to sell, other things equal

Question 17

Social Gain

Answer 17

= Total Value - Total Cost

Question 18

Consumer’s Gain

Answer 18

= Total Value - Total Amount Paid

Question 19

Producer’s Gain

Answer 19

= Total Amount Paid - Total Cost

Question 20

Overall Well-being

Answer 20

ADD MORE

Interacting markets solve the economic problem - allocating scarce resources to their best uses

Question 21

Changes in Supply

Answer 21

Shifts in the supply curve. That is, producers wish to produce more or less, even if the price does not change. They are caused by changes in the producer’s costs

Question 22

Changes in Demand

Answer 22

Shifts in the demand curve. That is, consumers wish to buy more or less, even if the price does not change. They are caused by changes in things that influence the consumer’s willingness to purchase the product which have nothing to do the product price