Summer Reading Quiz

Question 1

What does the word economy come from?

Answer 1

The Greek “one who manages a household”

Question 2

Scarcity

Answer 2

Society has limited resources and therefore cannot produce all the goods and services people wish to have, can’t give every individual the highest standard of living to which they might aspire
The limited nature of society’s resources

Question 3

Economics

Answer 3

The study of how society manages its scarce resources

Question 4

What do economists study?

Answer 4

How people make decisions, how people interact with one another, and analyze forces and trends that affect the economy as a whole

Question 5

What is an economy

Answer 5

A group of people interacting with one another as they go about their lives

Question 6

Principle one

Answer 6

People face trade offs

Question 7

Classic example of a trade off

Answer 7

Guns and butter: the more we spend on national defense (guns) to protect our shores from foreign aggressors the less we spend on consumer goods (butter) to raise our standard of living at home

Question 8

Efficiency

Answer 8

Society is getting the most it can from its scarce resources (the size of the economic pie, increasing efficiency is increasing the pie)

Question 9

Equity

Answer 9

The benefits of those resources are distributed fairly among society’s members (how the economic pie is divided, increasing equity means making the pie slices more equal)

Question 10

Principle two

Answer 10

The cost of something is what you give up to get it

Question 11

Opportunity cost

Answer 11

What you give up to get something

Question 12

High opportunity cost

Answer 12

You are giving up a lot more than you are getting

Question 13

Principle 3

Answer 13

Rational people think at the margin

Question 14

Marginal changes

Answer 14

Small incremental adjustments to an existing plan of action (adjustments around the edge of what you’re doing)

Question 15

Marginal benefits

Answer 15

Small little benefits you get from doing little things

Question 16

Marginal costs

Answer 16

Small little costs you get from doing little things

Question 17

Plane example

Answer 17

If have empty seat, better to sell for less than average because marginal cost is only price of peanuts and soda so actually making money

Question 18

A rational depiction maker takes an action if

Answer 18

The marginal benefit of the action exceeds the marginal cost

Question 19

Principle four

Answer 19

People respond to incentives

Question 20

Why are incentives important to consider

Answer 20

Policies can have unknown effects, if the policy changes people’s incentives then it will alter their behavior

Question 21

Principle five

Answer 21

Trade can make everyone better off

Question 22

What does trade allow for

Answer 22

Trade allows people/countries to specialize in what they do best, by trading with others by can buy a greater variety of goods and services at a lower cost

Question 23

Principle six

Answer 23

Markets are usually a good way to organize economic activity

Question 24

Communist countries had what type of economic thing

Answer 24

Government planners to guide economic activity, central planning, the theory was that only the government could organize economic activity in a way that promoted economic well being for the country as a whole, it collapsed because the invisible hand was tied behind the back

Question 25

Market economy

Answer 25

The decisions of a central planner are replaced by the decisions of millions of firms and households An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

Question 26

Firms and households roles

Answer 26

Firms decide whom to hire and what to make, households decide which firms to work for and what to buy with their incomes

Question 27

1776 Adam Smith an inquiry into the nature and causes of the wealth of nations

Answer 27

He made a very famous economics observation that households and firms interacting in markets act as if they are guided by an invisible hand that leads them to desirable market outcomes

Question 28

Invisible hand

Answer 28

Prices are the instrument with which the invisible hand directs economic activity When the govErnment prevents prices from adjusting naturally to supply and demand, it impedes the invisible hand's ability to coordinate the millions of households and firms that make up the economy—this is why too many taxes cause harm and policies that directly control prices cause even more harm

Question 29

Principle seven

Answer 29

Governments can sometimes improve market outcomes

Question 30

Two reasons for government to intervene in the economy

Answer 30

To promote efficiency and to promote equity

Question 31

Market failure

Answer 31

A situation in which the market on its own fails to produce an efficient allocation of resources (doesn't allocate resources efficiently)

Question 32

Externality

Answer 32

The impact of one person's actions on the well being of a bystander (ex pollution)

Question 33

Market power

Answer 33

The ability of a single person (or small group) to unduly influence market prices (ex one well, the owner isn't subjected to competition because there is only one well, can make the prices however high they want)

Question 34

Principle eight

Answer 34

A country's standard of living depends on its ability to produce goods and services

Question 35

Productivity

Answer 35

The amount of goods and services produced from each hour of a worker's time

Question 36

Higher productivity

Answer 36

Nations with higher productivity have higher standards of living

Question 37

Growth rate of a nation's productivity determines

Answer 37

Growth rate of average income

Question 38

Principle nine

Answer 38

Prices rise when the government prints too much money

Question 39

Inflation

Answer 39

An increase in the overall level of prices in the economy High inflation imposes various costs on society so keeping inflation at a low level is a goal of economic policy makers everywhere

Question 40

Persistent inflation reason

Answer 40

The culprit is the growth in the quantity of money (large quantities of money mean the value of the money falls)

Question 41

Principle ten

Answer 41

Society faces a short run trade off between inflation and unemployment

Question 42

Results of government increasing amount of money in economy

Answer 42

Inflation and a lower level of unemployment (second one is in the short run)

Question 43

Philips curve

Answer 43

Illustrates the short run trade off between inflation and unemployment Trade off is faced regardless of whether inflation and unemployment start high, low, or in between Crucial for understanding the business cycle

Question 44

Business cycle

Answer 44

The irregular and largely unpredictable fluctuations in economic activity, as measured by the number of people employed or the production of goods and services

Question 45

Scientific method

Answer 45

The dispassionate development and testing of theories about how the world works Interplay between theory and observation

Question 46

Assumptions

Answer 46

Economists make assumptions because assumptions can simplify the complex world and make it w skier to understand, allow economists to focus their thinking Different assumptions used to answer different questions

Question 47

Models

Answer 47

Economists use models to study the world, often diagrams or equations, omit details to show what's important All models are built with assumptions

Question 48

Circular flow diagram

Answer 48

A visual model of the economy that show how dollars flow through markets among households and firms Firs produce goods and services using inputs such as labor, land, and capital (these inputs are called factors of production) Households own the factors of production and consume all the goods and s vices the firms produce)

Question 49

Graphs

Answer 49

Offer a way to visually express ideas that might be les clear if described with equations or rods and they also provide a way of finding how variables are related to the world

Question 50

Single variable graphs

Answer 50

Display one variable, pie charts, bar graphs, and time series graphs

Question 51

Positive correlation

Answer 51

When the the two variables in a scatter plot move in the same direction

Question 52

Negative correlation

Answer 52

When the two variables in a scatter plot move in opposite directions

Question 53

Demand curve

Answer 53

Traces out the effect of a good's price on the quantity of the good consumers want to buy, represents the relationship between price and quantity demanded

Question 54

Negatively related and positively related

Answer 54

On a non scatter plot graph positive is when move in same direction negative is when move in opposite directions

Question 55

When necessary to shift a curve

Answer 55

When a variable that is not named on either axis changes, the curve shifts

Question 56

Slope

Answer 56

Change in y over change in x

Question 57

Causality and reverse causality

Answer 57

Causality is when things cause each other, reverse is when you think one determines the other but it's actually the reverse

Question 58

Omitted variables

Answer 58

Variables that aren't represented on the graph but may have something to do with the results

Question 59

How it's graded

Answer 59

10% participation 30% projects and homework 60% quizzes (20% short answers 40% multiple choice) Each quarter 22.5%, midterm and final 5%

Question 60

Podcasts per quarter

Answer 60

1 2 3 2

Question 61

How to find percent change

Answer 61

(New - original) / original