Unit 1: Basic Econ

Question 1

scarcity

Answer 1

the idea that there are unlimited wants but limited resources to fulfill those wants

Question 2

4 factors of production

Answer 2

capital, labor, entrepreneurship, natural resources

Question 3

capital (factors of production)

Answer 3

manufactured goods that are used to produce other goods (e.g. tools, machinery, factory buildings)

Question 4

labor (factors of production)

Answer 4

the physical and mental effort of people used to make goods
includes human capital

Question 5

entrepeneurship (factors of production)

Answer 5

the ability to allow a biz to happen by identifying opportunities and being willing to take risks to pursue a reward

Question 6

natural resources (factors of production)

Answer 6

“gifts of nature” that are used to make goods (e.g. land, minerals/ores, water, wind, plants)

Question 7

Microeconomics vs Macroeconomics

Answer 7

Micro = individuals, households, biz, studying how incentives/scarcity shape(s) econ behavior on a small scale
Macro = market on a large scale - studying inflation, GDP, unemployment rate, etc

Question 8

human capital

Answer 8

A part of the labor factor of production: the knowledge and skill built up over training and experience in a specific field

Question 9

What are the 3 Questions that determine the type of economic system?

Answer 9

What? (to make with scarce resources)
How? (will a good be produced)
For whom? (is the target demographic)

Question 10

economic system

Answer 10

method used by a society to produce and distribute goods and services

Question 11

command economy

Answer 11

a system where one person / the government centrally plans and runs the economy
pros: < unemployment, > job security, guarantee of basic services
cons: < incentive for innovation (bc no profit and less competition), < indiv freedom, > corruption

Question 12

market economy

Answer 12

a system where there is little to no gov involvement, with individuals owning resources ad making biz with 3 Qs in mind
pros: > incentive for efficiency due to profit + comp, > product diversity
cons:&raquo_space; income inequality

Question 13

mixed economy

Answer 13

a system with a free market but also some gov intervention
almost all countries (including USA) have this sys

Question 14

PPC definition

Answer 14

Production Possibilities Curve: hypothetical scenario where country produces 2 goods - asks what can a country do with all of its resources?

Question 15

PPC desc

Answer 15

expo decay graph w neg slope: point a inside the curve (inefficient)
point b c d on the curve (efficient)
point e outside curve (impossible)

Question 16

opportunity cost

Answer 16

what is given up through choosing something (what is the next best option?)

Question 17

invisible hand

Answer 17

the idea that competition and self-interest = progress that regulates the free market and meets societal needs
key in idea of the market economy

Question 18

Describe the two types of PPCs and what opportunity costs they have.

Answer 18

CCD curve - increasing opp costs
Linear (neg slope) - constant opp cost - typically goods that are similar to one another (e.g. stools/chairs)

Question 19

What could shift a PPC and why?

Answer 19

Quantity/quality of resources
Change in tech
Specialized trade (produce more of what we’re good at, aka comparative advantage)

Outward = more product. Inward = less product

Question 20

What’s the difference between capital and consumer goods?

Answer 20

capital goods are made for indirect consumption (used to produce other goods)
consumer goods are made for direct consumption (shoes, pencils, phones, etc)

Question 21

absolute advantage

Question 22

comparative advantage

Question 23

input vs output problems: comparative advantage

Answer 23

output - how many of good x can be produced?
* opp cost: 1 good x = N good y
input - how may hours goes into producing 1 of good x?
* opp cost: N good x / N hours = N good Y / Z hours

Question 24

explicit vs implicit costs

Answer 24

explicit: traditional out of pocket cost (e.g. price of flight)
implicit: what an indiv/biz gives up to do an activity/use a resource (e.g. giving up a shift … losing the wage you could’ve gotten)

Question 25

total net benefit

Answer 25

total benefit - total cost

Question 26

marginal

Answer 26

“one more”
cost: what does one more of good x cost?
benefit: what does one more of good x yield?

Question 27

Optimization (marginal analysis)

Answer 27

Marginal benefit = Marginal cost
If MB > MC, keep producing until MB = MC

Question 28

marginal utility

Answer 28

additional satisfaction obtained from one more good x

Question 29

diminishing marginal utility

Answer 29

when additional MU associated with consuming more units of a product in given amount of time declines

Question 30

Utility maximization rule

Answer 30

Marginal utility per dollar of good x (MUx / Px) = MUpd of good y

also transfers to maximizing total benefit / cost given the marginal ben / cost

Question 31

consumer surplus

Answer 31

total benefit (n) - total cost (n)

Question 32

(N, TU). (2,130) (3,180) (4,220) (5,250) (6,270) (7,280)

The marginal utility per dollar spent on the last orange consumed is 75. If the price of an apple is $0.50, how many apples would Johnny have to consume before he considers purchasing another orange?

N = number of apples. TU = total utility

Answer 32

4 apples. MUpd = 80 (almost = 75). This is the last apple that has a MUpd > 75.