microeconomics exam one

Question 1

what is economics?

Answer 1

a social science that studies production and trade observing individual values and social order

Question 2

what is spontaneous order?

Answer 2

order that is the product of human action, not human desire

Question 3

what is positive analysis?

Answer 3

analysis that attempts to describe the way things are in reality

reality vs. subjective value

Question 4

what is normative analysis?

Answer 4

analysis that describes a value judgement

reality vs. subjective value

Question 5

what is a theory?

Answer 5

an abstract explanation to some phenomenon

Question 6

what is society?

Answer 6

a group of people who have moral, political or economic relationships with each other

Question 7

what is social system?

Answer 7

a set of rules that determine the physical force in human relationships

Question 8

what is market economy?

Answer 8

a social system in which resources are privately owned and controlled

Question 9

what is command economy?

Answer 9

a social system in which resources are collectively owned and controlled (typically through the government)

Question 10

what is property right?

Answer 10

a moral and legal right to control a resource, and exclude others from it.

based on the concept of consent (self ownership)

Question 11

what is a mixed economy?

Answer 11

a social system in which some resources are privately owned and controlled, and some are owned or controlled by the government

Question 12

what are the four starting points of economics?

Answer 12

1. scarcity
2. unlimited desires
3. methodological individualism
4. rational choice

Question 13

what is scarcity?

four starting points of economics

Answer 13

the concept that the amount of goods available is not sufficient to satisfy all human desires

(there will always be scarcity. must use basic tradeoff)

make choices

Question 14

what is unlimited desires?

four starting points of economics

Answer 14

the concept that no matter what ones current circumstances, it is always possible to imagine and achieve a more desirable state of affairs

(concept of want and need on a spectrum and can differ)

human potential

Question 15

what is methodological individualism?

four starting points of economics

Answer 15

the principle that the individual human being is the basic unit of research in social studies

(to be more precise)

Question 16

what is rational choice?

four starting points of economics

Answer 16

the principle in which people pursue their own values

Question 17

what is price system?

Answer 17

a network of interrelated prices of goods and services

price system is the conductor of the economy, which is the symphony

Question 18

what is the exchange of equivalents theory?

Answer 18

the theory that people exchange one good for another when both parties value the goods equally

Question 19

what is the just price theory?

Answer 19

the theory that there is a single just price at which each good should be sold

Question 20

some mercantalists believe:

Answer 20

• social order requires government planning
• money constitues real wealth for a nation
• exchange is a zero-sum game
• there is a “public interest” seperate from the interest of actual individualists

key points that mercantalism is revolved around

Question 21

what is nominal value of money?

Answer 21

face value of a certain amount of money

Question 22

what is real value of money?

Answer 22

the goods and sevices that can be purchased with a certian amonut of money

Question 23

what is a zero-sum game?

Answer 23

a situation in which for one party to gain, the other must lose

ie. poker, tennis, trade

Question 24

what is mutally beneficial exchange?

Answer 24

an exchange that benefits both parties

supermarket (both are doing a service to one another)

Question 25

some of the main ideas of "the classical thought of economic thought" are

Answer 25

- people are self-interested -individuality promotes spontaneous order | adam smith explains that in a market system, to get what you want : ## Footnote there are people that pursue self interest

Question 26

what is the invisible hand metaphor?

Answer 26

adam smiths metaphor for the power of individual self interest to create spontaneous order

Question 27

what is utility?

Answer 27

usefullness in satisfying human desires

Question 28

what is the subjective theory of price?

Answer 28

the theory that the price of a good is determined by utility

Question 29

what is the water-diamonds paradox?

Answer 29

the observation that water is very useful but has a low price, while a diamond may not be very useful but has a high price | price cannot be determined by its utility use

Question 30

what is labor theory value?

Answer 30

the theory that the price of a good is determined by its cost of production or the amount of labor used to produce it. | the more expensive something is to make, the higher the price ## Footnote vice versa

Question 31

what are some of the problems with labor theory value?

Answer 31

- how do you measure labor - labor has a price - it is a theory of intrinsic value - it ignores the context of change

Question 32

what is intrinsic value theory?

Answer 32

the theory that the value of an object is inherent to the object itself

Question 33

what is the iron law of wages?

Answer 33

the theory that the price of labor is determined by the cost of human substinence and reproduction

Question 34

what is marginal revolution?

Answer 34

the discovery of the theory of marginal utility

Question 35

what is a good?

Answer 35

a useful thing that is subject for human control

Question 36

requirements to be a good:

Answer 36

1. a human need must exist 2. the object must have properties that allow it to satisfy that need 3. humans must know of this causal connection 4. humans must have sufficient control over the object to make use of it

Question 37

what is an order number?

Answer 37

where something falls in the production line | (where in the process is something made

Question 38

what is a consumer good? | (first order good)

Answer 38

a good that serves our desires directly

Question 39

what is a producer good? | (higher order good)

Answer 39

a good that is used in the production of another good

Question 40

what is the structure of production?

Answer 40

the set of steps in which producer goodsare used to produce a consumer good

Question 41

what is marginal unit?

Answer 41

the next unit gained or given up

Question 42

what is marginal utility?

Answer 42

an additional utility that a person gets from having one more unit of a good, or loses from having one less unit of a group | how much happier someone would be, moving on and on

Question 43

what is the theory of marginal utility?

Answer 43

the theory that the price of a good is determined by its marginal utility

Question 44

what is ordinal ranking?

Answer 44

a list in order of preference | prioritize desires, where is the margins?

Question 45

what is opportunity cost?

Answer 45

the best alternative being given up when making a choice

Question 46

what is dimishing marginal utility?

Answer 46

as a person acquires more units of a good, the satisfaction they derive from each new unit is lower than the previous. | as you get more, they get less valuable

Question 47

what is increasing marginal opportunity cost?

Answer 47

as a person gives up more units of a good, the satisfaction they give up with each new unit is higher than the previous | as you get less, they get more valuable

Question 48

what is the range of indeterminacy?

Answer 48

the range of potential prices | what will satisfy both parties?

Question 49

what is marketing clearing price?

Answer 49

a price at which anyone who wants to buy or sell can find a willing trade partner