Exam 1

Question 1

Definition of Economics

Answer 1

The study of how individuals and society choose to use the scare resources that nature and previous generations have provided.

Question 2

Three key concepts in economics

Answer 2

Opportunity cost
sunk cost and marginal cost
efficient market

Question 3

Define Opportunity Cost

Answer 3

The best alternative that we give up when we make a choice or decision.

Question 4

Define Sunk Cost

Answer 4

Costs that cannot be avoided, regardless of what is done in the future, because they have already been incurred (represents the past).

Question 5

Define Marginalism

Answer 5

The process of analyzing the additional or incremental cost or benefits arising from a choice or decision.

Question 6

Define Efficient Market

Answer 6

Marhet in which profit opportunities are eliminated almost instaniously.

Question 7

Economic Methodology

Answer 7

Economics theory (theoretical economics), descriptive economics, empirical economics, variables, theory, model, Ceteris Paribus.

Question 8

Define Economics Theory

Answer 8

involves the interpretation of this data as well as the formation of hypotheses.

Question 9

Define Descriptive Economics

Answer 9

involves gathering and compiling data about the economy. Descriptive economics occurs when economists make observations, notice patterns and record facts.

Question 10

Define Empirical Economics

Answer 10

The collection and use of data to test economic theories.

Question 11

Define Model

Answer 11

a formal statement theory, usually a statement of presumed relationship between 2 or more variables.

Question 12

Define Ceteris Paribus

Answer 12

(all is equal) Device used to analyze the relationship between 2 variables while the values of other variables are held unchanged.

Question 13

Two types of economic analysis

Answer 13

Normative economics and Positive economics

Question 14

Define Normative Economics

Answer 14

An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe course of action.

Question 15

Define Positive Economics

Answer 15

An approach to economics that seeks to understand behavior and the operation systems without judgement. It describes what exists and how it works.

Question 16

Two Branches of Economics

Answer 16

Microeconomics and Macroeconomics

Question 17

Define Microeconomics

Answer 17

The branch of economics that examines the functions of individual industries and the behavior of individual industries.

Question 18

Define Macroeconomics

Answer 18

Examines the economic behavior of national production/output. Ex. GDP.

Question 19

Four Criteria of Economics

Answer 19

Efficiency, Equity, Growth, and Stability

Question 20

Define Efficiency

Answer 20

Refers to allocative efficiency. An efficient economy is one that produces what people want at the least possible cost.

Question 21

Define Equity

Answer 21

Fairness. Weather its fair or not Doesn’t mean both sides are equal.

Question 22

Define Growth

Answer 22

an increase in the total output of an economy.

Question 23

Define Stability

Answer 23

a condition in which national output is growing steadily.

Question 24

Three Fundamental Questions facing each economics

Answer 24

What gets produced? How it gets produced? Who gets what is produced?

Question 25

Three fundamental inputs/resource/factors in production

Answer 25

Land, Labor, and Capital

Question 26

One Graphical Tool

Answer 26

Production Possibility Frontiers (PPF)

Question 27

Define PPF

Answer 27

is a curve or a boundary which shows the combinations of two or more goods and services that can be produced whilst using all of the available factor resources efficiently.

Question 28

Three concepts illustrated in a PPF graph

Answer 28

Efficiency (production and economic efficiency), Opportunity Cost, and economic growth

Question 29

Define Production Efficiency

Answer 29

An economic level at which the economy can no longer produce additional amounts of a good without lowering the production level of another product. This will happen when an economy is operating along its production possibility frontier.

Question 30

Define Economic Efficiency

Answer 30

A broad term that implies an economic state in which every resource is optimally allocated to serve each person in the best way while minimizing waste and inefficiency. When an economy is economically efficient, any changes made to assist one person would harm another.

Question 31

Two types of Economic Advantage

Answer 31

Absolute and Comparative Advantage

Question 32

Define Absolute Advantage

Answer 32

A producer has a absolute advantage over another if he or she an produce that product using fewer resources, or if they can produce more with the same resources.

Question 33

Define Comparative Advantage

Answer 33

Free trade benefits all trading partners because through voluntary cooperation and exchange, the whole can become greater the sum of its parts.

Question 34

Two economic systems

Answer 34

Laissez Faire and Command Economics

Question 35

Define Laissez Faire Economics

Answer 35

French term "allow them todo" economy in which individual people and firms pursue their won self-interest without any central direction or regulation.

Question 36

Define Command Economics

Answer 36

An economy in which a central government either directly or indirectly sets output targets, income and price.

Question 37

Two characteristics of a Laissez Faire economy

Answer 37

Consumer Sovereignty and Free enterprise

Question 38

Define Consumer Sovereignty

Answer 38

Idea that consumers ultimately dictate what will be produced (or not) by choosing what to produce (or not to).

Question 39

Define Free Enterprise

Answer 39

Freedom of individuals to state and operate private businesses in search of profit.

Question 40

Define Production

Answer 40

Process of transporting goods and services

Question 41

Define inputs

Answer 41

Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants Land Labor Capital.

Question 42

Define outputs

Answer 42

Goods and services value to a household.

Question 43

Define Capital Goods

Answer 43

Things that are produced and then used in the production of other goods and services.

Question 44

Define Choice

Answer 44

Is an act of choosing between two or more possibilities.

Question 45

Define Fallacy of Composition

Answer 45

The belief hat what is true for a part is not necessarily true for the whole.

Question 46

Define Post Hos Fallacy

Answer 46

Literally, "after this in time, therefore be this". A common error made made in thinking about causation. If event A happens before event B, it is not necessarily true A caused B to happen.

Question 47

Define consumer goods

Answer 47

goods bought and used by consumers, rather than by manufacturers for producing other goods.

Question 48

Define Investment

Answer 48

The process of using resources to produce new capital.