ECON_CH 1 & 2

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Questions and Answers

What is the primary reason for studying economics?

To become rich

To learn a way of thinking (correct)

To get a high-paying job

To understand the stock market

What is the concept that illustrates the idea that every choice has a cost?

Scarcity

Opportunity Cost (correct)

Efficient Markets

Marginalism

What is the term for the process of analyzing the additional or incremental costs or benefits arising from a choice or decision?

Opportunity Cost

Marginalism (correct)

Scarcity

Efficient Markets

What is the term for a market in which profit opportunities are eliminated almost instantaneously?

Efficient Market Signup and view all the answers

What historical period saw the rise of new manufacturing technologies and improved transportation, leading to the modern factory system and a massive movement of the population from the countryside to the cities?

Industrial Revolution Signup and view all the answers

What is the definition of economics?

The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided. Signup and view all the answers

What is a potential effect of increasing employment opportunities for girls in developing nations, according to economic development studies?

Increased educational achievements Signup and view all the answers

Which of the following is a topic of study in the field of international economics?

The benefits and costs of free trade Signup and view all the answers

What is an example of a question that would be studied in the field of behavioral economics?

Do aggregate household savings increase when people are automatically enrolled in savings programs? Signup and view all the answers

What is a potential consequence of increasing the minimum wage, according to labor economics?

Decreased employment opportunities Signup and view all the answers

Which of the following is a macroeconomic topic?

The impact of automatic enrollment on savings rates Signup and view all the answers

What is a potential benefit of free trade, according to international economics?

Increased economic efficiency and growth Signup and view all the answers

Which of the following is a microeconomic concern?

Distribution of income and wealth Signup and view all the answers

What is the primary focus of macroeconomics?

Aggregate price level Signup and view all the answers

Which of the following is not a concern of microeconomics?

National income Signup and view all the answers

What do microeconomics and macroeconomics have in common?

They both examine the economy in terms of production and income Signup and view all the answers

Which of the following is a macroeconomic concern?

Total wages and salaries Signup and view all the answers

What can be said about the distinction between microeconomics and macroeconomics?

Microeconomics is a more narrow field of study than macroeconomics Signup and view all the answers

What is the primary goal of positive economics?

To describe what exists and how it works Signup and view all the answers

What is the term for holding the values of other variables unchanged in an analysis?

All else equal Signup and view all the answers

What is the primary goal of normative economics?

To prescribe courses of action Signup and view all the answers

What is a model in economics?

A mathematical statement of a presumed relationship between variables Signup and view all the answers

What is one of the four criteria for judging economic outcomes?

Efficiency Signup and view all the answers

What does efficiency mean in economics?

Producing what people want at the least possible cost Signup and view all the answers

What is equity in economics?

Fairness in the distribution of income Signup and view all the answers

What are the three primary resources that must be allocated in an economy?

Land, labor, and capital Signup and view all the answers

What is the term for the process of transforming scarce resources into useful goods and services?

Production Signup and view all the answers

What is the concept that illustrates the idea that every society has some system or process that transforms its scarce resources into useful goods and services?

Economic problem Signup and view all the answers

What is Ricardo's theory that specialization and free trade will benefit all trading parties?

Theory of comparative advantage Signup and view all the answers

What are the three basic questions that every society must answer to allocate its scarce resources?

What gets produced, how is it produced, and who gets what is produced Signup and view all the answers

What is the term for the discipline of economics?

Study of constrained choice Signup and view all the answers

What is the concept that is central to the discipline of economics?

Constrained choice Signup and view all the answers

What is the term for the cost of choosing one option over another?

Opportunity cost Signup and view all the answers

What is the maximum possible total corn production in Ohio and Kansas according to the production possibility schedule?

700 million bushels per year Signup and view all the answers

What is the term for the fundamental problem faced by all economic systems due to scarce resources?

Economic problem Signup and view all the answers

Which of the following is NOT a basic economic question?

When is it produced? Signup and view all the answers

What is the term for an economic system in which the government plays a minimal role and private enterprise drives the economy?

Laissez-faire economy Signup and view all the answers

What is the term for the concept in which individuals make their own production decisions in a free market economy?

Free enterprise Signup and view all the answers

What is the maximum possible total wheat production in Ohio and Kansas according to the production possibility schedule?

550 million bushels per year Signup and view all the answers

What is the term for the study of how individuals and businesses make decisions about how to allocate limited resources?

Microeconomics Signup and view all the answers

What is the term for the concept in which consumers have the power to influence what gets produced in a free market economy?

Consumer sovereignty Signup and view all the answers

What is the relationship between total corn production and total wheat production at point D on the production possibility schedule?

Total corn production is 400 million bushels per year and total wheat production is 500 million bushels per year Signup and view all the answers

What is the primary difference between absolute advantage and comparative advantage?

Absolute advantage is based on the absolute cost per unit, while comparative advantage is based on the opportunity cost. Signup and view all the answers

According to the production possibility frontier, what happens when all of society's resources are used efficiently?

All combinations of goods and services that can be produced are shown. Signup and view all the answers

What is the law of increasing opportunity cost related to?

The production possibility frontier. Signup and view all the answers

In the context of Figure 2.2, what can be inferred about Coleen and Bill's production abilities?

Coleen has an absolute advantage in producing baskets of wood, while Bill has an absolute advantage in producing baskets of food. Signup and view all the answers

What is the main difference between the graphs shown in Figure 2.3?

The graph on the left shows the production possibilities without trade, while the graph on the right shows the production possibilities with trade. Signup and view all the answers

What is the main purpose of the production possibility frontier?

To show the various combinations of two goods that can be produced given the resources available. Signup and view all the answers

What is the relationship between the production possibility frontier and the law of increasing opportunity cost?

The production possibility frontier is a graphical representation of the law of increasing opportunity cost. Signup and view all the answers

What is the main difference between the graphs shown in Figure 2.2 and Figure 2.3?

The graphs show the production possibilities with and without trade. Signup and view all the answers

Study Notes

The Importance of Economics

Economics is essential to understanding society and is a fundamental part of being an informed citizen.
It helps us make informed decisions and understand how individuals and societies choose to use scarce resources.

The Scope of Economics

Microeconomics: studies individual industries and businesses, production, prices, income, and employment.
Macroeconomics: studies national production, price levels, national income, and employment and unemployment.

The Fields of Economics

Behavioral economics: studies how people make decisions when they are not fully rational.
Comparative economic systems: compares market and command and control systems of resource allocation.
Econometrics: uses statistical methods to analyze economic data.
Economic development: studies how to increase employment opportunities and improve living standards in developing countries.
Economic history: studies the development of economic systems and institutions over time.
Environmental economics: studies the economic impact of environmental policies and pollution.
Finance: studies how people and businesses raise and manage funds.
Health economics: studies the economic aspects of healthcare and medical services.
History of economic thought: studies the development of economic ideas and theories.
Industrial organization: studies the structure and behavior of firms and industries.
International economics: studies international trade and finance.
Labor economics: studies the labor market and the behavior of workers and firms.
Law and economics: studies the economic impact of laws and regulations.
Public economics: studies the economic role of government and the impact of public policies.

Principles of Economics

Economics is the study of how individuals and societies choose to use scarce resources.
The study of economics teaches us a way of thinking and helps us make decisions.
Economics has three fundamental concepts: opportunity cost, marginalism, and efficient markets.

The Method of Economics

Positive economics: seeks to understand behavior and the operation of systems without making judgments.
Normative economics: analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action.

Theories and Models

A model is a formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables.
Theories and models are used to analyze relationships between variables while holding other variables constant (ceteris paribus).

Economic Policy

Economic policy is judged on four criteria: efficiency, equity, growth, and stability.
Efficiency means producing what people want at the least possible cost.
Equity means fairness and justice.
Growth refers to an increase in production and income over time.
Stability refers to a low level of inflation and unemployment.

Absolute and Comparative Advantage

A producer has an absolute advantage over another in producing a good or service if they can produce it using fewer resources (lower absolute cost per unit).
A producer has a comparative advantage over another in producing a good or service if they can produce it at a lower opportunity cost.

Comparative Advantage and the Gains from Trade

Coleen can produce either 10 baskets of wood or 10 baskets of food.
Bill can produce either 4 baskets of wood or 8 baskets of food.
When both Coleen and Bill specialize, more units of each good are produced.

Production Possibility Frontier (PPF)

A graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently.
The PPF illustrates the law of increasing opportunity cost.

The Economic Problem: Scarcity and Choice

Every society must decide what gets produced, how it is produced, and who gets what is produced.
The primary resources that must be allocated are land, labor, and capital.

Scarcity, Choice, and Opportunity Cost

Scarcity and choice are central to the discipline of economics.
Opportunity cost is the value of the next best alternative that is given up when a choice is made.

Specialization, Exchange, and Comparative Advantage

The theory of comparative advantage states that specialization and free trade will benefit all trading parties.

Production Possibility Schedule

A table that shows the possible combinations of two goods that can be produced, given the resources available.

Inefficiency from Misallocation of Land in Farming

Misallocating land in farming can lead to inefficiency and reduced production.

Economic Systems and the Role of Government

Command economies, laissez-faire economies, and mixed economies are different types of economic systems.
The government plays a role in regulating the economy and addressing market failures.

Consumer Sovereignty and Individual Production Decisions

Consumer sovereignty refers to the idea that consumers have the power to influence what goods and services are produced.
Individual production decisions are guided by profit motive and market forces in a free enterprise system.

Price Theory

Price theory is the study of how prices are determined in a market economy.

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Description

This quiz covers the basics of economics, including its importance in understanding society, microeconomics, and macroeconomics.