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Economics 101: Chapter 1 Review
Please study well before the test.
Terms in this set (31)
Definition of economics? What would economics be in one word? Why do we have to make choices? What do our choices often depend on or respond to?
1)The social science that studies the choices that individuals, businesses, governments, and entire societies make.
3) Because we can't have everything we want since money and time are limited.
4) The incentives we face.
Define scarcity in economics? What can't we have as a result? What does it equal? Why can't we eliminate it?
1)Our inability to satisfy our wants.
2)Can't have everything we want.
4)Because it's a combination of limited resources and unlimited human wants.
What is an incentive? How does it relate to marginal benefit & marginal cost? What is the cause of choices being forced to not be made in the social interest?
1) Is a reward that encourages an action or a penalty that discourages an action.
2)Encompasses the idea of marginal benefit and marginal cost.
3)Because of the incentives we face.
When making choices, what do economists assume? What should outweigh what in this concept?
1) Assume we are all rational beings who will pick the choice that is best for us.
2)Marginal benefit outweighs the marginal cost.
Answer these questions with short phrases: What should we produce? How to produce it? Who gets them?
1)Whatever we need.
2)By using the cheapest service
3)Whoever can afford the products.
Definition of microeconomics? Example?
Is the study of choices that individuals make, the way those choices interact in markets and the influence of governments.
Ex) The fast-food chain, Mcdonald's may affect the availability of eggs.
Definition of macroeconomics? 2 examples?
Is the study of the performances of the national and global economies.
-Warned that the economic recovery will keep interest rates in Canada on hold for a while.
-What will happen to the price of computers as more firms produce them.
What two types of statements does economics distinguish from? What shorthand phrase is assigned to each? Definition of each + examples. What is the central task of economists in regard to looking at positive statements?
1) Positive: Is a statement of fact and can be tested
Ex)A strick lockdown will reduce the pandemic spread.
2)Normative: Is a statement of subjective value judgment and cannot be tested.
-What ought to be.
Ex) Unemployment is more important than homelessness + policy goals.
3)Is to test positive statements about the economic world and to weed out the wrong ones.
What are goods and services? They are produced by using what? What are the four groupings?
1)The objects that people value and produce to satisfy human wants.
2)By productive resources called factors of production.
3)Land, labour, capital, entrepreneurship.
Define land as a factor of production. What does it earn?
1)The "gifts of nature" that are used to produce goods and services.
Define labor as a factor of production? What does it earn?
1) The work time and effort people use to produce goods and services.
Define human capital as a factor of production? What does labor quality have to do with this? Define capital as a factor of production? What do they both earn?
1)The knowledge and skills that people obtain from education, on-the-job training, and work experience.
2)Labour quality depends on human capital.
3)The tools, instruments, machines, buildings, and other constructions used to produce goods and services.
Define entrepreneurship as a factor of production? What does it earn?
1)The human resources that organize land, labor, and capital.
What are the two big economic questions regarding CHOICES? Where do all economic questions arise from?
-How do choices end up determining what, how, and for whom goods and services are produced?
-Do choices made in the pursuit of self-interest also promote social interest?
2) From scarcity.
What words summarize economics? What statements of fact apply to the last two of the three?
1) What, how, and for whom.
-How = Goods and services are produced by using factors of production.
-For whom = Who gets the goods and services depends on personal incomes.
What is economics a toolkit for? To explain the economic world, what do economists create? Define an economic model?
1) For advising governments, businesses, and for making personal economic decisions.
2) Create and test economic models.
3)Is a description of some aspect of the economic world that includes only relevant features for the purpose at hand.
Define social interest in regard to choices. When is the use of resources in the social interest? What happens when the market works well?
1)Choices that are best for society as a whole.
2)If resources are used efficiently and goods and services are distributed fairly.
3)Self-interest and social interest go hand in hand.
Explain how self-interest can = social-interest?
Whatever we like, someone is producing it to provide for their family and themselves which is how self-interest = social interest.
What does the economic way of thinking place at center stage?
Scarcity and implication.
Every choice should be thought of as what? Define the concept? What is emphasized in this concept?
1) A tradeoff.
2)When exchanging more of something for less of something else.
3)Emphasizes cost as an opportunity forgone.
What is opportunity cost? What is an important part of opportunity cost? What are never an opportunity cost.
1)The highest valued alternative that we give up.
2)The value of the alternative.
3) Essentials living expenses such as food and rent.
What does it mean to make choices at the margin i.e what? Another way to express this allocation-wise? Example? Define marginal benefit. Define marginal cost.
1)To evaluate the consequences of making incremental changes in the use of their resources i.e how much.
2)To decide how to allocate your efforts and time to certain decisions i.e how much to do at a time.
Ex) Only having an hour to relax so you choose to play piano for 15 minutes then read for the rest of the time.
3)The benefit from pursuing an incremental increase in an activity.
4)The opportunity cost of pursuing an incremental increase in an activity.
What happens if MB > MC? What happens if MB < MC? What is incentive the key to?
1)They have an incentive to do more of that activity.
2)They have an incentive to do less of that activity.
3)Key to reconciling self-interest and social interest.
What does the art of making assumptions involve yet what? What do economists try to monetize?
1)Involves simplifying your assumptions yet your conclusion shouldn't be simplified.
2)People's value and life.
Can economists make controlled experiments and why? Define the concept behind the reason and why economists can't do this.
1)No, it's due to ceteris paribus.
2)Means to hold things constant but economists cannot do this as things are always changing in the world.
Shortly explain how rational beings can come to make different decisions. What two things do all humans value in decision-making? And define a rational choice? What is relevant to rationality? Thus, answer this: What goods and services will be produced and in what quantities?
1)Because we all have different benefits and costs.
2) Doing the right thing and being fair.
3)One that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice.
4)The wants of the person making the choice.
5)Whatever is rational to that person.
Earnings of economics majors are greater than who? Major in economics + PhD=?
1)Finance, engineering, math, and business majors.
2)$100,000 by mid-career
When is resource use efficient?
-When it's not possible to make someone better off without making someone else worse.
What is the central idea of economics?
That we can predict the self-interested choices that people make by looking at the incentives they face.
Describe the jobs of economics majors?
Can be described as collecting and analyzing data on the production and use of resources, goods, and services; predicting future trends; and studying ways of using resources efficiently.
Define the benefit of something? What aspect of humans determines this? How do economists determine benefit?
1)Is the gain or pleasure that it brings.
2)Determined by preferences.
3)The most that a person is willing to give up to get something.
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