Podcast
Questions and Answers
What is a marginal change?
What is a marginal change?
small, incremental adjustment.
What does air pollution from burning fossil fuels exemplify?
What does air pollution from burning fossil fuels exemplify?
a market failure caused by an externality.
What is referred to as an increase in the overall level of prices in an economy?
What is referred to as an increase in the overall level of prices in an economy?
inflation.
College-age athletes who drop out of college are unaware that their opportunity cost of attending college is very high.
College-age athletes who drop out of college are unaware that their opportunity cost of attending college is very high.
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What is economics the study of?
What is economics the study of?
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What does efficiency mean in economic terms?
What does efficiency mean in economic terms?
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What is market power?
What is market power?
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How do rational people make decisions?
How do rational people make decisions?
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What does the 'invisible hand' refer to?
What does the 'invisible hand' refer to?
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What does the adage 'There is no such thing as a free lunch' imply?
What does the adage 'There is no such thing as a free lunch' imply?
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How are equality and efficiency different?
How are equality and efficiency different?
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What is your opportunity cost?
What is your opportunity cost?
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Which of the following firms is most likely to have market power?
Which of the following firms is most likely to have market power?
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When the government redistributes income from the wealthy to the poor, efficiency is improved.
When the government redistributes income from the wealthy to the poor, efficiency is improved.
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Thousands of people developing lung cancer from second-hand cigarette smoke is an example of a market failure caused by an externality.
Thousands of people developing lung cancer from second-hand cigarette smoke is an example of a market failure caused by an externality.
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What do economists claim as policy advisors?
What do economists claim as policy advisors?
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What are factors of production?
What are factors of production?
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What do economists often omit in building economic models?
What do economists often omit in building economic models?
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In the circular-flow diagram, who are buyers in the market for goods and services?
In the circular-flow diagram, who are buyers in the market for goods and services?
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In the circular-flow diagram, who are sellers in the market for factors of production?
In the circular-flow diagram, who are sellers in the market for factors of production?
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What would explain the shift of the production possibilities from A to B?
What would explain the shift of the production possibilities from A to B?
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What would likely cause the production possibilities frontier to shift outward?
What would likely cause the production possibilities frontier to shift outward?
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What is the opportunity cost of each car in the production possibilities frontier for an economy that produces only sofas and cars?
What is the opportunity cost of each car in the production possibilities frontier for an economy that produces only sofas and cars?
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At which point(s) cannot the economy produce?
At which point(s) cannot the economy produce?
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At which points can this economy produce?
At which points can this economy produce?
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What is the opportunity cost of an increase in wheat production from 700 bushels to 1300 bushels?
What is the opportunity cost of an increase in wheat production from 700 bushels to 1300 bushels?
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What is the slope of a line that passes through the points (20, 30) and (40, 14)?
What is the slope of a line that passes through the points (20, 30) and (40, 14)?
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In the short run, what is likely to happen if the money supply increases?
In the short run, what is likely to happen if the money supply increases?
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What is the typical worker's income most closely linked to?
What is the typical worker's income most closely linked to?
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What is the primary cause of inflation?
What is the primary cause of inflation?
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Study Notes
Macroeconomic Concepts
- A marginal change refers to a small, incremental adjustment in decision-making.
- Air pollution from fossil fuels exemplifies a market failure caused by externalities, impacting crops and public health.
- Inflation is defined as the overall increase in price levels within an economy.
- Opportunity cost is the high value college-age athletes assign to forgoing college for professional sports.
- Economics is the study of how society allocates its scarce resources effectively.
Economic Efficiency and Market Dynamics
- Efficiency in economics indicates that society derives maximum benefits from its limited resources.
- Market power refers to the ability of an individual or small group to influence market prices, such as a sole gasoline station in a rural area.
- Rational decision-making involves comparing marginal costs with marginal benefits to make informed choices.
- The "invisible hand" describes how individual decision-making by households and firms can lead to favorable market outcomes.
Equality versus Efficiency
- The phrase “There is no such thing as a free lunch” illustrates that individuals must face tradeoffs in decision-making processes.
- Equality and efficiency differ in that equality refers to the even distribution of benefits, while efficiency focuses on maximizing societal benefits from resources.
- Government actions that redistribute income may enhance equality but can decrease overall efficiency.
Economic Models and Theories
- Economists, when acting as policy advisors, often propose normative claims about ideal world conditions and outcomes.
- Factors of production are the inputs necessary for creating goods and services.
- Economic models frequently omit intricate details to simplify analysis and focus on fundamental principles.
Circular-Flow Model
- In the circular-flow diagram, households play the role of buyers in the goods and services market while acting as sellers in the factors of production market.
- Technological advances can shift production possibilities outward, improving efficiency and production capacity.
Production Possibilities Frontier (PPF)
- Opportunity costs in production can be calculated from the slope of the PPF, reflecting trade-offs between two products, such as cars and sofas.
- Certain points on the PPF represent inefficiency (unattainable points) while others depict optimal production capabilities.
- An increase in wheat production may require sacrificing a specific amount of corn, illustrating the opportunity cost concept.
Economic Indicators
- A short-run increase in the money supply can lead to reduced unemployment and heightened inflation.
- The income level of a typical worker correlates closely with the overall productivity level within an economy.
- Primary drivers of inflation include an increase in the money supply, impacting purchasing power and price levels sustainably.
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Description
Test your understanding of key macroeconomic concepts including marginal changes, inflation, opportunity cost, and market efficiency. This quiz also explores how externalities and market power influence economic decision-making and resource allocation.
