Macro Econ Chapter 1

Question 1

Economics

Answer 1

the discipline that studies how efficient decisions are made

Question 2

Efficient decisions

Answer 2

involves choosing the most valuable alternative

Question 3

theory of revealed preferences

Answer 3

Our choices reveal our values

Question 4

Characteristics of Value

Answer 4

• Value depends on the situation.
• Value is different for different people.
• Subsequent units of the same good have less value.

Question 5

optimal arrangement principle

Answer 5

the idea that we first choose the best, then the second best, and so on

Question 6

value of something to an individual

Answer 6

the most that individual is willing to sacrifice to obtain that something. Or, if the individual owns that something, its value is the least the individual is willing to accept in exchange for that something

Question 7

Value of Clean Air

Answer 7

looking at how very similar houses’ prices vary in neighborhoods with clean air and in polluted air

Question 8

value of a potential child

Answer 8

looking at how much must be sacrificed in time and money to have and raise a child

Question 9

find how much individuals value their own lives

Answer 9

looking at how much money a worker will accept to work at a job where they are more likely to get killed. This value is between $1 million and $10 million

Question 10

why we value a dollar

Answer 10

Only for the things we get in exchange for a “dollar”

Question 11

Cost

Answer 11

the value of the best alternative which is sacrificed when a decision is made

Question 12

no free lunch principle

Answer 12

any decision involves cost

Question 13

Macroeconomics

Answer 13

the study of entire economies, using concepts like total output, the unemployment rate, the national debt, total investment

Question 14

Scarcity

Answer 14

We have many more wants than our resources can satisfy

Question 15

Marginal Value

Answer 15

is the value of the individual units of that something

Question 16

Marginal Analysis

Answer 16

We consume each unit for which the marginal value is at least as great as marginal cost

Question 17

Law of Diminishing Returns

Answer 17

As we add workers to a production facility, eventually they become less productive because there’s no way for everyone to take part in the production process

Question 18

as production increaces

Answer 18

marginal cost increaces

Question 19

Demand

Answer 19

the relationship between the possible prices of something and the quantities people are willing to buy, other things equal.

Question 20

the demand curve is the same AS

Answer 20

the marginal value curve

Question 21

Supply

Answer 21

the relationship between the possible prices of something and the quantities that people or firms are willing and able to sell, other things equal.

Question 22

equilibrium price

Answer 22

where supply AND demand meet

Question 23

Social gain=

Answer 23

Total Value- Total Cost

Question 24

Consumer’s gain=

Answer 24

total value- total amount paid

Question 25

Producer’s gain=

Answer 25

total amount paid- total cost

Question 26

The economic problem is solved by

Answer 26

free people acting in the market

Question 27

Changes in supply

Answer 27

are shifts in the supply curve. That is, producers wish to produce more or less, even if the price does not change. They are caused by changes in the producer’s costs

Question 28

Changes in demand

Answer 28

are shifts in the demand curve. That is, consumers wish to buy more or less, even if the price does not change. They are caused by changes in things that influence the consumer’s willingness to purchase the product which have nothing to do the product price.