Chapter 1: Thinking like an Economist

Question 1

economics

Answer 1

study of choices people make based on the scarcity of resources

Question 2

scarcity

Answer 2

unlimited wants exceed limited resources to fulfill those wants

Question 3

diamond-water paradox

Answer 3

diamonds are scare, so they have greater value. water is abundant, so it is less valuable.

Question 4

market

Answer 4

group of buyers and sellers (utc, offerup, etsy, etc.)

Question 5

invisible hand theory

Answer 5

individuals’ pursuit will guide firms to produce that best meets consumers’ needs

Question 6

equilibrium

Answer 6

the invisible hand will guide the market to the “optimal” price

Question 7

cost-benefit principle

Answer 7

action taken only if the benefits are as great as the costs

Question 8

opportunity cost

Answer 8

highest value alternative given up in order to engage in some activity (explicit+implicit cost)

Question 9

explicit cost

Answer 9

financial cost of a transaction

Question 10

implicit costs

Answer 10

value of best forgone use of a resource

Question 11

sunk cost

Answer 11

costs that are irrecoverable at the time the decision is made, should not be considered when making a decision

Question 12

economic surplus

Answer 12

the total benefit consumers and producers receive from a market transaction
*if economic surplus is positive, then pursuing the given activity will make you better off

Question 13

marginal

Answer 13

additional or incremental

Question 14

marginal analysis

Answer 14

conducting a cost benefit analysis, comparing the additional cost of an incremental action to the additional benefit of an incremental action

Question 15

marginal cost (MC)

Answer 15

additional cost incurred by taking an incremental action

Question 16

marginal benefit (MB)

Answer 16

the additional benefit realized by taking an incremental action

Question 17

incentive

Answer 17

benefit derived from taking an action

Question 18

model

Answer 18

simplified version of reality that enables one to identify a relationship
-economists build models to test hypotheses regarding human behavior

Question 19

hypothesis

Answer 19

an if, then statement that can be tested

Question 20

correlation

Answer 20

a statistical relationship between 2 variables

Question 21

causation

Answer 21

one variable has a measurable impact on another variable

Question 22

positive analysis

Answer 22

analysis concerned with what is
-when the price of Coachella tickets decrease, more tickets will be sold

Question 23

normative analysis

Answer 23

analysis concerned with what ought to be
-the state of California should offer a free college education to all residents

Question 24

cost-benefit principle

Answer 24

an action should be taken if, and only if, its benefits exceed its cost

Question 25

use IOU

Answer 25

when Inputs are given put the Other good (the good you are not finding the OC of) Underneath in your fraction

Question 26

economic growth

Answer 26

an increase in an economy's ability to produce good and services, shift ppf outwards

Question 27

economic decline

Answer 27

a contraction in an economy's ability to produce goods and services, ppf shift inwards 1