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Economics 201 Ch 1
Principles of Economics Ch 1
| Question | Answer |
|---|---|
| The basic economic problem is: | Scarcity |
| Human wants are: | Unlimited |
| Resources are: | Limited |
| Scarcity is: | The problem that human wants exceed the production possible with the limited resources available. |
| Economics is: | The study of how individuals and societies use their limited resources to try to satisfy their unlimited wants. |
| Resources: | The inputs that make production possible. |
| Resources can be divided into these categories: | Labor, land, capital, and entrepreneurship. |
| Labor: | The physical and mental efforts that people contribute to production. The productivity of labor depends largely on the amount of human capital that the labor force develops. |
| Human Capital: | Developed ability that increases a person's productivity. It is developed primarily through education and training and through work experience. |
| Land: | The naturally occurring resources, such as unimproved land, minerals, fossil fuels, forests, water, and weather. |
| Capital: | Produced goods that are unused in the production of other goods. Examples are highways, harbors, airports, railroads, factories, warehouses, office buildings, and machinery. |
| Entrepreneurship: | The special skill involved in organizing labor, land, and capital for production. |
| Entrepreneurs are generally motivated by: | The goal of profit-maximization. |
| Entrepreneurs bear the risk of: | Loss |
| In a market economy, the resources are generally owned by: | Private individuals |
| Rational people will want: | To do that which makes them better off and will want to avoid doing that which makes them worse off. |
| An incentive: | Changes the benefit or cost associated with an action. |
| In the pursuit of self-interest, rational people will respond to: | Incentives |
| According to Adam Smith, the resource owner's purist of self-interest will generally: | Serve the best interest of society. |
| In a competitive market, the pursuit of profit-maximization will lead the resource owners toward what two actions that serve the best interest of society? | Resource owners will direct their resources to the use that is most highly valued by consumers and resource owners will use their resources as efficiently as possible. |
| Opportunity Cost | The value of the best alternative surrendered when a choice is made. |
| In the US economy, the primary rationing device is: | Dollar price |
| Using dollar price as the rationing device means that: | Resources will be rationed to the use that is most highly valued by consumers. |
| Economic decisions are made by comparing: | The marginal (extra, additional) benefits of a choice with the marginal (extra, addiitonal) costs. |
| Optimal (ideal, most, efficient) level of the activity occurs where: | The marginal benefit and the a marginal costs are equal. |
| To make sound economic decisions: | A person needs to think like an economist. |
| There are _________ of thinking like an economist? | Six Aspects |
| Positive Statements | Statements that claim to describe the way things are and can be tested for accuracy. |
| Normative Statements | Statement that prose the way things ought to be and express value judgments and cannot be tested for accuracy. |
| One of the aspects of thinking like an economist is: Realizing that association does not necessarily indicate causation. In making economic decisions, we often look for: | Cause and Effect |
| One of the aspects of thinking like an economist is: Avoiding the fallacy of composition. The fallacy of composition is: | The idea that what is true for one must be true for the group. |
| One of the aspects of thinking like an economist is: Distinguishing between positive statements and normative statements. Positive statements can be tested for _______ while normative statements cannot be tested for __________ . | Accuracy |
| One of the aspects of thinking like an economist is: Assuming ceteris paribus when examining the relationship between variables. Other variables must be held constant if: | We are to arrive at the actual relationship between the variables we are examining. |
| Ceteris Paribus (ka ter is - pair u bus) | All other things held constant. |
| One of the aspects of thinking like an economist is: Realizing that people respond to incentives. Rational people will repsond to incentives when: | Pursing their own self-interest. |
| Incentive | Changes the benefit or cost associated with an action. |
| One of the aspects of thinking like an economist is: Trying to anticipate unlimited consequences. Actions are taken in hopes of: | Achieving a desired outcome, but unintended consequences may also result. |
| Macroeconomics | The branch of economics that focuses on overall economic behavior. (Examples: inflation, unemployment, economic growth, budget deficits, and trade deficits. |
| Microeconomics | The branch of economics that focuses on components of the economy. (Examples: households, firms, particular markets, and specific industries.) |
| Graphs | They illustrate the relationship between two variables. |
| The horizontal number line on a graph is called: | The X axis |
| The vertical number line on a graph is called: | The Y axis |
| Direct Relationship | An upward sloping curve. As the value for X increases, the value for Y also increases. |
| Indirect Relationship | A downward sloping curve. As the value for X decreases, the value for Y also decreases. |
| Slope of a curve | The ratio of the vertical change to the horizontal change as the graph is read from left to right. |
| Slope = | Change in Y variable / Change in X variable |
Created by:
dengler
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