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Questions and Answers
What is the primary focus of microeconomics?
What is the primary focus of microeconomics?
What is the term for economic statements that involve value judgments?
What is the term for economic statements that involve value judgments?
What is the name of the graph that shows the different combinations of two goods that an economy can produce?
What is the name of the graph that shows the different combinations of two goods that an economy can produce?
What is the term for the increase in the opportunity cost of producing a particular good as more of it is produced?
What is the term for the increase in the opportunity cost of producing a particular good as more of it is produced?
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What is the term for the situation where an economy is able to produce more of both goods due to economic growth?
What is the term for the situation where an economy is able to produce more of both goods due to economic growth?
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What is the primary reason behind the concept of scarcity in economics?
What is the primary reason behind the concept of scarcity in economics?
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What is the term for the value of the next best alternative that is given up when making a choice?
What is the term for the value of the next best alternative that is given up when making a choice?
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What is the goal of individuals and firms in the context of economics?
What is the goal of individuals and firms in the context of economics?
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What is the term for the analysis of the additional benefits and costs of a decision?
What is the term for the analysis of the additional benefits and costs of a decision?
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What is the underlying assumption of human behavior in economics?
What is the underlying assumption of human behavior in economics?
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Study Notes
Microeconomics and Macroeconomics
- Microeconomics studies the individual consumer, firm, or market
- Macroeconomics studies the entire economy or a major aggregate of the economy
Positive and Normative Economics
- Positive economics deals with factual economic statements
- Normative economics involves value judgments in economic statements
The Economizing Problem
- The economizing problem arises from limited income and unlimited wants
- The budget line shows attainable and unattainable combinations of goods and services
- Trade-offs and opportunity costs are involved in making choices
Consumer's Budget Line
- The budget line represents the different combinations of two goods that can be purchased with a given income
- The budget line is determined by the income and prices of the two goods
Society's Economizing Problem
- Society's economizing problem involves the allocation of four categories of economic resources: land, labor, capital, and entrepreneurial ability
- Entrepreneurs employ the other factors of production, take initiative, make strategic business decisions, innovate, and take risks
Production Possibilities Model
- The production possibilities model shows different combinations of two goods that an economy can produce with full employment, fixed resources, and fixed technology
- The model is used to illustrate the trade-offs between consumer goods and capital goods
Production Possibilities Graph
- The production possibilities graph shows the different combinations of two goods that an economy can produce
- The graph is concave due to the law of increasing opportunity costs
Law of Increasing Opportunity Costs
- The law of increasing opportunity costs states that as more of a particular good is produced, its marginal opportunity costs increase
- The production possibilities curve has a concave shape due to this law
Optimal Output
- The optimal output is achieved when the marginal benefit equals the marginal cost
Growing Economy
- A growing economy can produce more of both goods due to economic growth
- The production possibilities curve shifts outward due to economic growth
Economics
- Economics is a social science concerned with making optimal choices due to scarcity
- Scarcity and choice lead to opportunity costs and the need for purposeful behavior to increase utility
- Marginal analysis is used to make decisions based on the marginal benefits and costs of a choice
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Description
This quiz covers the basics of economics, including scarcity, opportunity cost, and the economic perspective. Learn how humans make optimal choices with limited resources.
