ECON

Question 1

Briefly define economics.

Answer 1

Social science that deals with the distribution and production of scarce resources

Question 2

Briefly define poverty

Answer 2

Not having enough money/resources to enjoy a decent quality of life. Lack of access to healthcare, education, water, sanitation facilities

Question 3

Illustrate the unprecedented rise in global living standards.

Answer 3

-reduction in extreme poverty
-increases access to basic goods and services

Question 4

How can inequality be measured. Give 2 examples of countries where inequality is relatively low, and relatively high

Answer 4

Inequality can be measured by the Gini coefficient, income/wealth distribution, and the ratio between the poorest and richest groups.
Norway, Japan
Botswana, Brazil

Question 5

Definition of the gross domestic product. Definition of the gross national product. How do they differ?

Answer 5

GDP measures total value of goods and services produced within a country over a given time. GNP measures total value of goods and services produced by a country’s residents, regardless of location over a given time.
They differ in that GDP focuses on where, while GNP focuses on who.

Question 6

What matters to our quality of life?
Cite 4 factors

Answer 6

Freedom, Leisure, Mental Health, Family Life, Environmental Quality, Safety

Question 7

Cite 4 reasons why the GDP is not a good indicator of well-being

Answer 7

1. When comparing between countries, exchange rates distorts GDP
2. Cross Border trading between companies distorts the GDP
3. Does not measure non-monetary economy and black market
4. Neglects depreciation of natural capital

Question 8

What factors are behind the industrial revolution (briefly discuss three factors).

Answer 8

1. agricultural revolution, increased food production to support an increasing population
2. technological innovation; inventions like steam engine revolutionized production
3. availability of resources: abundance of coal deposits and energy sources fueled production and distribution

Question 9

Cite 3 factors that characterize economic growth and inequality since the industrial revolution.

Answer 9

1. technological advancements
2. per capita income has fallen over long periods
3. globalization has resulted in the interconnectedness of economies world-wide

Question 10

Cite a couple of innovations each in agriculture, energy, and transportation during the industrial revolution

Answer 10

1. agriculture - innovations in seed drill, crop rotations, land use, soil health = sustained increase in yields
2. energy - transition to mining and redistribution of coal. coal lead to steam power = innovations in energy
3. transportation - overland roads and canals, steam engine which power railroad locomotives that bring raw material to industry and goods to market

Question 11

Briefly explain how an increase in labor productivity can lead to increases in living standards.

Answer 11

Labor productivity means more goods produced with less work, meaning more affordable goods and less arduous work.

Question 12

What is a capital good?

Answer 12

A good that is used to produce other goods and services

Question 13

Briefly define 3 key features of capitalism

Answer 13

1. Private ownership - individuals own property and businesses, not the government
2. Market - competitive markets where production and distribution are driven by supply and demand
3. Firms - profit-driven institutions

Question 14

Give 3 examples of economic systems. Briefly define each.

Answer 14

1. Centrally planned economy - government/state control production, distribution, resource allocation
2. Market economy - Decisions are driven by individuals and businesses based on supply and demand. There is little government intervention.
3. Traditional Economy - Based on customs, traditions, and beliefs. Economic roles and production methods are inherited and rarely change. Common in rural tribes

Question 15

Briefly define institutions, private property, and markets.

Answer 15

1. Institutions - sets of laws or social customs regulating distribution and production of businesses
2. Private Property - a person possesses private property if they can exclude others from it, benefit from it, or exchange it with others
3. Markets - institution where individuals can exchange goods and services by means of directly reciprocated transfers, entered into for mutual benefit

Question 16

Cite 2 factors explaining why institutions associated with capitalism have the potential to make people better off and very briefly explain how.

Answer 16

1.

Question 17

Cite 3 factors that can lead to different varieties of capitalism.

Answer 17

1. Economic conditions - securing private property, competitive markets, individuals profit-motivated
2. Political Conditions - provide physical infrastructure, laws and regulation, taxation to redistribute wealth
3. Good institutions - separation of powers, well functioning branches of government

Question 18

Cite 3 factors that distinguish liberal market economics from coordinated market economies.

Answer 18

Income distribution of a liberal market economy is more unequal while a coordinated market economy is more equal
Unionization rate of a lib market is low, while coordinated market economy is high
Inter-firm relations are competitive, while coordinated is collaborative

Question 19

What is democracy? How can it help limit the excesses of capitalism?

Answer 19

Democracy means ‘rule by the people’. A political system in which every person has equal political power, and political leaders are elected, not appointed. Limits excesses of capitalism by giving political power to the less wealthy.

Question 20

What is the 15th amendment? What is the 19th amendment?

Answer 20

15th - granted African American citizens the right to vote
19th - granted women the right to vote

Question 21

Briefly discuss some of the negative environmental impacts of economic activity.

Answer 21

1. Deforestation
2. Air pollution
3. Water pollution
4. Deforestation
5. Global climate change

Question 22

Definition and examples of a social dilemma.

Answer 22

In which the outcome of individuals all working towards their self-interest is worse than the outcome of those individuals working together/cooperating.
ie traffic jams, climate change

Question 23

What is free riding?

Answer 23

Free riding is when an individual benefits from a good or service that they did not contribute to.

Question 24

What are social preferences? Give two examples.

Answer 24

A preference that places a value on how the outcome of an action affects not only themselves but others around them.
1. Altruism - donating to charity (for the benefit of others, even at the cost to themself)
2. Refusing a pay raise because an equally-working coworker was not offered one (sacrificing for equality)

Question 25

Cite three ways to resolve social dilemmas.

Answer 25

1. Social preferences - preference that cares for how ones actions affects others 2. Public policies - quotas, taxation (fisheries quotas helped stop overfishing) 3. Local institutions - regulate behavior (HOA)

Question 26

What are the four components of a game?

Answer 26

1. Players 2. Feasible strategies 3. Pay-off matrix 4. Information

Question 27

Briefly explain the prisoner’s dilemma game. How does it relate to the invisible hand metaphor?

Question 28

How can we learn about the preferences of others (cite 2 ways)?

Answer 28

1. Survey Questions 2. Lab Experiments 3. Field Experiments 4. Statistical Studies of Economic Behaviors

Question 29

What is a public good? What is a private good?

Answer 29

1. Public Good - a good or service available to all members of society and the use of it by others does not hurt its availability to others ie military, public parks 2. Private Good - a good or service that must be purchased, the consumption of it by one individual prevents the consumption of it by another ie clothing, food

Question 30

Briefly explain: altruism, reciprocity, and inequality aversion.

Answer 30

1. Altruism - when a person acts to benefit others at a cost to themselves, without expecting anything in return 2. Reciprocity - tendency to respond to others actions with a similar action. (you're more likely to treat someone kind with kindness) 3. Inequality Aversion - dislike for unequal outcomes, gives up personal gains to reduce inequality