Chapter 1 -The Challenge of economics

Question 1

What is microeconomics?

Answer 1

Study of individual behavior in the economy

Question 2

What does microeconomics focus on?

Answer 2

Individuals, Firms, and government agencies that make up the larger economy

Question 3

What is macroeconomics?

Answer 3

Study of aggregate economic behavior

Question 4

Give 3 examples of macroeconomics

Answer 4

National goals as a full employment, control of inflation, economic growth

Question 5

What is the definition of economics?

Answer 5

Study of how best to allocate scarce resources among competing uses

Question 6

What are the 3 questions of economics?

Answer 6

What to produce
How to produce
For whom to produce

Question 7

What is the definition of scarcity

Answer 7

Lack of available resources to satisfy all desired uses of those resources

Question 8

What is the central problem of economics?

Answer 8

Scarcity

Question 9

Due to ______ we must make a choice, which leads to ______

Answer 9

Due to scarcity, we must make a choice, which leads to opportunity cost

Question 10

What is opportunity cost?

Answer 10

The most desired goods and services that are foregone in order to obtain something else

Question 11

What is the definition of the factors of production? (DONT list them)

Answer 11

Resource inputs used to produce goods and services

Question 12

What are the 4 factors of production? (LIST THEM)

Answer 12

Land
Labor
Capital
Entrepreneurship

Question 13

Why do we have to decide WHAT to produce??

Answer 13

There aren’t enough resources to produce ALL goods and services desired by society

Question 14

Explain the graph of the production possibilities curve

Answer 14

Downward slope. Y axis = output of good 1
X axis = output of good 2

Question 15

What does the production possibilities curve predict??

Answer 15

The alternative combination of goods and services that can be produced given the quantity and quality of the faactors of production

Question 16

What does it mean when we’re producing along the curve on the production possibilities curve??

Answer 16

We’re using ALL available resources

Question 17

Name 3 ways the economic pie can be distributed and name the economic question this answers

Answer 17

1. Distribution based on production contribution
2. Distribution based on need
3. Combination of production and need

Question 18

Why can distribution based on need cause a problem?

Answer 18

This may lower the incentive to work causing less work effort/incentive. There is less output to distribute

Question 19

Many basic economic choices are made through the____________

Answer 19

Political process

Question 20

What are the 3 mechanisms of choices?

Answer 20

1. The market mechanism
2. Central Planning
3. Mixed Economics (mix of both)

Question 21

What is the market mechanism?

Answer 21

Using market prices and sales to signal desired outputs. Market sales/prices send a signal to producers on what mix of outputs customers want

Question 22

What is central planning?

Answer 22

The government decides what goods are produced, the prices they’re sold at, and who gets them

Question 23

Most nations today use which mechanism of choices?

Answer 23

Mixed economics

Question 24

Using the market mechanism could result in ________

Answer 24

Market failure - imperfection in the market mechanism that prevents optimal outcomes

Question 25

Sometimes when the market fails, the government intervenes. This could result in ______

Answer 25

government failure. government intervention that fails to improve economic outcomes. could worsen the mix of output