Lecture 1

Question 1

Opportunity cost

Answer 1

what you have to give up in order to get something

Question 2

Opportunity cost formula

Answer 2

|Slope of PPF| which is |∆y/∆x of PPF|
inversed: 1/|∆y/∆x|

Question 3

Deductible

Answer 3

amount of money you have to pay yourself until insurance covers the rest of the amount

Question 4

Equilibrium

Answer 4

Situation where no people would be better off doing something else

Question 5

Marginal cost

Answer 5

the additional cost it takes to make or do something extra than you’ve been already doing

Question 6

Absolute advantage

Answer 6

Being able to produce more (higher amount) than others

Question 7

Comparative advantage

Answer 7

Being able to produce a product at lower opportunity cost than others

Question 8

PPF

Answer 8

Production possibility frontier.

All efficient possibilities of production between two products

Question 9

Most common economics research type?

Answer 9

Empirical (Data work)

Question 10

Economics definition

Answer 10

Study of how people and companies make choices. Consequences of those choices

Question 11

Model

Answer 11

simplified description of reality, designed to generate hypotheses about economic behavior that can be tested

Question 12

Positive analysis

Answer 12

Analysis in which objective “how things are” approach is used

Descriptive, objectively correct answer)

Question 13

Normative analysis

Answer 13

Analysis in which (partly) subjective “how things should be” approach is used
(Prescriptive)

Question 14

12 Principles of economics

Answer 14

1. You must choose because there is a limit on resources
2. True cost of things is its opportunity cost
3. “How much” is a decision at the margin
4. People usually react to incentives, exploiting opportunities to make themselves better off
5. There are gains from trade
6. Markets move toward equilibrium
7. Resources should be used efficiently to achieve society’s goals
8. Markets usually lead to efficiency
9. When markets fail to achieve efficiency, government intervention can improve society’s welfare.
10. One person’s spending is another person’s income
11. Overall spending sometimes gets out of line with the economy’s productive capacity
12. Government policies can change spending

Question 15

Explain “You must choose because there is a limit on resources”

Answer 15

Principle of economics

There is scarcity of resources, therefore you cannot have everything and must choose what to give up in order to have something

Question 16

Explain “True cost of things is its opportunity cost”

Answer 16

Principle of economics

We pay a cost for everything, even “free” stuff, the thing you could’ve bought or do if you didn’t have the item you have, that is the true cost of it (the opportunity cost)

Question 17

Explain ““How much” is a decision at the margin”

Answer 17

Principle of economics

If you consider to do less or more of something (like how much to buy) before making a decision, that is a decision at the margin

Question 18

Explain “People usually react to incentives, exploiting opportunities to make themselves better off”

Answer 18

Principle of economics

People usually make decision based on what they think is best for themselves or their surroundings they care for (children)

Question 19

Explain “There are gains from trade”

Answer 19

Principle of economics

Specialization can benefit optimizing outcome and then exchanging goods due to comparative advantage

Question 20

Explain “Markets move towards equilibrium”

Answer 20

Principle of economics

If there is higher demand or supply than the other, markets will come into balance due to actions of agents

Question 21

Explain “Resources should be used efficiently to achieve society’s goals”

Answer 21

Principle of economics

Efficiently used resources result in greater economic growth and maximization of profit

Question 22

Explain “Markets usually lead to efficiency”

Answer 22

Principle of economics

In markets by allowing agents to exchange freely, self-interest will drive agents to higher efficiency

Question 23

Explain “When markets fail to achieve efficiency, government intervention can improve society’s welfare”

Answer 23

Principle of economics

in case of externalities, asymmetric information government can make taxes, policies, tariffs, etc. to combat it (or even inequity)

Question 24

Externalities

Answer 24

Side-effects of an economic activity which affects other people than those involved in that activity

Question 25

Marginal analysis

Answer 25

study of marginal decisions

Question 26

Incentive

Answer 26

Opportunity to make oneself better off

Question 27

Why markets move towards equilibrium

Answer 27

Because agents respond to incentives

Question 28

Market failure

Answer 28

situation where allocation of goods and services by free market is not efficient

Question 29

Explain “Overall Spending Sometimes Gets Out of Line with the Economy’s Productive Capacity “

Answer 29

People can spend more than the production supplies

Question 30

Explain “One person’s spending is another person’s income”

Answer 30

If some group decides to spend less, the income of other groups will fall

Question 31

Explain “Government policies can change spending”

Answer 31

Government can control tax rates and money circulation which can reduce or raise spending of the people