Microeconomics Chapter 1 Quiz

Questions and Answers

What is scarcity?

The unlimited nature of society's resources

The distribution of economic prosperity

The study of how society manages its resources

The limited nature of society's resources (correct)

What is economics?

The study of how society manages its scarce resources.

What is efficiency?

The property of society getting the most from its scarce resources.

What is equality?

The property of distributing economic prosperity uniformly among the members of society. Signup and view all the answers

What does it mean to be rational?

Systematically and purposefully doing the best you can to achieve your objectives. Signup and view all the answers

What is opportunity cost?

Whatever is given up to get something else. Signup and view all the answers

What are marginal changes?

Incremental adjustments to an existing plan. Signup and view all the answers

A rational decision-maker takes an action only if...?

the marginal benefit is greater than the marginal cost. Signup and view all the answers

What is an incentive?

Something that induces a person to act. Signup and view all the answers

What is a market economy?

An economic system where interaction of households and firms in markets determines the allocation of resources. Signup and view all the answers

What are property rights?

The ability of an individual to own and exercise control over scarce resources. Signup and view all the answers

What is the 'invisible hand' principle?

The principle that self-interested market participants may unknowingly maximize the welfare of society as a whole. Signup and view all the answers

What is market failure?

A situation in which the market fails to allocate resources efficiently. Signup and view all the answers

What is an externality?

When one person's actions have an impact on a bystander. Signup and view all the answers

What is market power?

The ability of an individual or group to substantially influence market prices. Signup and view all the answers

What is a monopoly?

The case in which there is only one seller in the market. Signup and view all the answers

What is productivity?

The amount of goods and services produced from each unit of labor input. Signup and view all the answers

What is inflation?

An increase in the overall level of prices. Signup and view all the answers

What is a business cycle?

Fluctuations in economic activity. Signup and view all the answers

People face...?

trade-offs. Signup and view all the answers

What is the guns vs. butter debate?

If a society spends more on national defense (guns), then it will have less to spend on social programs (butter). Signup and view all the answers

The cost of something is...?

what you give up to get it. Signup and view all the answers

What is the opportunity cost of going to college?

Tuition payment, value of time you could have spent working (valued at potential earnings). Signup and view all the answers

Rational people...?

think at the margin. Signup and view all the answers

People respond to...?

incentives. Signup and view all the answers

Who does trade make better off?

Everyone. Signup and view all the answers

What is usually a good way to organize economic activity?

In markets. Signup and view all the answers

How can the government sometimes improve market outcomes?

<ol> <li>The government protects property rights (incentive to work). 2. Can sometimes intervene to improve efficiency or equality. 3. Intervenes in monopolies. 4. Income taxes + welfare.</li> </ol> Signup and view all the answers

What does a country's standard of living depend on?

Its ability to produce goods and services. Signup and view all the answers

What happens when the government prints too much money?

Prices rise. Signup and view all the answers

What causes the business cycle?

The short-run trade-off between inflation and unemployment. Signup and view all the answers

Which is more efficient: market economies or centrally planned economies?

Market economies. Signup and view all the answers

In the U.S., if income has grown about 2% per year, how many years does it take to double?

35 years. Signup and view all the answers

In the short run, falling inflation is associated with?

Rising unemployment (not good!!!). Signup and view all the answers

Study Notes

Key Concepts in Microeconomics

Scarcity: Limited resources versus unlimited wants; fundamental problem in economics.
Economics: Study of resource management in societies with scarce resources.
Efficiency: Maximizing output from limited resources.
Equality: Even distribution of economic prosperity among society members.
Rational Behavior: Systematic decision-making in pursuit of objectives.

Core Economic Principles

Opportunity Cost: Value of the next best alternative that is forgone when making a decision.
Marginal Changes: Small adjustments to existing plans, vital for decision-making.
Rational Decision-Making: Actions are taken if marginal benefit exceeds marginal cost.
Incentives: Factors that motivate individuals to act.

Market Dynamics

Market Economy: Systems driven by household and firm interactions determining resource allocation.
Property Rights: Individuals’ control over scarce resources, crucial for economic efficiency.
Invisible Hand: Self-interest in the marketplace can lead to societal welfare maximization.
Market Failure: Occurs when resources are not allocated efficiently, leading to inefficiencies.

External Factors

Externality: Effects of one individual's actions on bystanders, influencing market efficiency.
Market Power: Capacity of individuals or groups to affect market prices significantly.
Monopoly: Market structure with a single seller dominating supply.

Economic Indicators

Productivity: Measure of output per labor unit; key to economic growth.
Inflation: Rise in overall price levels in an economy.
Business Cycle: Regular fluctuations in economic performance, involving growth and recession.

Trade-offs and Choices

Trade-offs: All decisions involve giving up alternatives to pursue a preferred outcome.
Guns vs. Butter Debate: Economic allocation dilemma between defense spending and social programs.
Opportunity Cost of Education: Balance between tuition costs and forgone earnings from potential employment.

Behavioral Economics

Rational Thinking: Decision-makers consider incremental benefits and costs.
Response to Incentives: Individuals adapt behavior based on perceived incentives.

Trade and Economic Organization

Benefits of Trade: Positive impact on all parties involved, enhancing overall welfare.
Organizing Economic Activity: Markets generally promote efficient economic organization.

Government's Role

Government Intervention: Can protect property rights, improve efficiency and equality, and regulate monopolies.
Income Growth: In the U.S., income grows approximately 2% annually, requiring around 35 years for doubling.

Economic Relationships

Oversupply of Money: Leads to rising prices, highlighting the inflation impact.
Business Cycle Causes: Influenced by a trade-off between inflation and unemployment.

Comparative Economic Systems

Efficiency of Market vs. Centrally Planned Economies: Market economies tend to be more efficient than centrally planned counterparts.
Consequences of Falling Inflation: Associated with rising unemployment, indicating potential economic distress.

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Description

Test your understanding of key concepts from Microeconomics Chapter 1. This quiz covers essential terms such as scarcity, efficiency, and the study of economics. Perfect for students looking to solidify their knowledge of the subject.