Econ 201 Phase 1- Essentials Of Econ

Front 1

What is economics?

Back 1

The study of how behavior, in small scale (consumer, business) or large scale (government policy), affects a larger system

Front 2

What is the difference between micro and macro economics?

Back 2

Micro deals with decisions made at the individual (consumer) and at the business level. Macro deals with decision making at a massive scale: national employment rates, inflation, regulation that affects whole industries.

Front 3

What is cost?

Back 3

Money out: expenses involved in the production of goods or services.

Front 4

What is opportunity?

Back 4

The chance to create something with resources.

Front 5

What is opportunity cost?

Back 5

What has to be sacrificed in order to create something since time and resources are limited (one x can only equal one y).

Front 6

What is the "what, how and who" of economics?

Back 6

Consumers/demanders: what do they prefer? Production: what resources are used to produce?
Distribution: who is the product distributed to and how is wealth, derived from this cycle, distributed?

Front 7

What is theory?

Back 7

A method of explaining the nature of the cycles of production, consumption and distribution. Theory is usually explained using a diagram model.

Front 8

What are the characteristics of models?

Back 8

A model shows the relationship between the dependent and the independent variable. Models illustrate the growth, stagnation or decline of the dependent variable when influenced by the independent variable.

Front 9

What is the difference between an independent and a dependent variable?

Back 9

An independent variable is one that exists independently of the dependent variable, and that is not influenced by the dependent variable.

Front 10

1.Why does scarcity exist?

Back 10

Because there's a finite amount of resources (materials and labor) as when compared with our infinite creative and entrepreneurial ability.

Front 11

What is input and output?

Back 11

Input refers to the costs incurred in the collection of resources necessary to create a certain product or service. It also refers to those resources themselves. The output is the products/services that are derived from those resources.

Front 12

How are production, consumption and distribution part of an economy?

Back 12

They are the three elements that lead an economy into the cycles of input and output.

Front 13

1.What are the four resources?

Back 13

Land, labor, capital and entrepreneurship.

Front 14

1.What is the definition of capital?

Back 14

Capital represents the man-made resources used to create more capital or consumer-ready products. A limit in capital resources can limit productivity levels (or lack of it can prevent productivity in general), so the economy has to focus a certain amount of resources to create these capital resources in order to enhance its (the economy) self.

Front 15

What is the definition of entrepreneurship?

Back 15

They bring together the first 3 resources in order to initiate the input/output cycle, produce and distribute.

Front 16

What is the principle of comparative advantage?

Back 16

Resources, depending on their ability/skill, should be allocated to uses that allow them to yield the greatest output.

Front 17

What is technical efficiency?

Back 17

Production using the right methods and also using comparative advantage of to allocate resources. This helps to keep costs down, keeps biz competitive.

Front 18

What is economical efficiency?

Back 18

Producing what there is a demand for – if the product is not wanted, resources are wasted. This keeps the business competitive.

Front 19

1.How does economic efficiency extend the definition of efficiency beyond technical efficiency?

Back 19

If there is no demand for the product then the resources were wasted even if the product was made with technical efficiency.

Front 20

Why is equity a goal for the economy, yet it is difficult to define?

Back 20

Equity, the fair distribution of wealth, is important to an economy because distribution of wealth leads to more opportunities for people to become a productive part of the economy. Equity is difficult to define because it's a moral issue, so opinions differ on it.

Front 21

How does economic analysis trace the effects from a decision?

Back 21

Analysis studies the actions (made by business) and the consequences impacting groups or individuals.

Front 22

What is meant by intended consequences?

Back 22

The results of a decision that are planned for or expected.

Front 23

What is meant by unintended consequences?

Back 23

Unintended consequences are results of an action which don't pertain to the objective. They become costs "worth incurring" as long as the intended consequences are achieved.

Front 24

Why is it important to distinguish how groups are impacted from a decision?

Back 24

Because any decision can have unintended consequences, which negatively impact a group, which can possibly also trickle down into the local economy, impacting it negatively.

Front 25

Why do you suppose that advocates of a decision often ignore all the consequences?

Back 25

Because they see those consequences are "worth the cost" in order to achieve their objective. The actions of advocates are based on values, which are restricted by tight parameters.

Front 26

What are the elements involved in decision-making?

Back 26

Weighing the marginal benefits vs marginal costs. Naturally a cost must be incurred before a benefit is received. Marginal benefit > Marginal cost.

Front 27

Why do constraints cause costs?

Back 27

Constraints can lead to lost opportunities. This can lead into opportunity costs.

Front 28

How do we draw a model to illustrate constraints?

Back 28

The model must represent the constraint as the independent variable and the opportunity as the dependent variable. IE: x - location space, y - volume of sales.

Front 29

What is opportunity cost?

Back 29

Opportunity cost defines the singular nature of resources. IE: A single resource is sacrificed at any given time in order to yield one result. There is large possibility of results, but only one can be chosen.

Front 30

What does economics mean when it uses the word marginal?

Back 30

Marginal refers to what will be gained in addition to what already exists.

Front 31

Why is an objective function important in decision-making?

Back 31

Objectives help to identify exactly what benefits you are seeking, as an individual or as a business. This in-turn leads you into the process of calculating cost to benefit in order to make a decision.

Front 32

Who has a clear objective function and who does not?

Back 32

Businesses must have clear objectives to operate. Individuals may have less clear objectives for the simple matter that clear objectives are not vital to their existence, as in the case of businesses. Government has the least clear objectives since it's an organization made up of powerful representatives with many differing values and opinions.

Front 33

How is opportunity cost defined?

Back 33

Opportunity cost reflects that there is foregone alternative from acting on just one of the alternatives.

Front 34

Why is marginal cost also opportunity cost?

Back 34

Marginal cost is cost to be paid above and beyond what has been paid – it's expected cost. This money could be going to several different alternatives, but only one can be chosen out of those – thus a marginal cost is also an opportunity cost.

Front 35

When the demand increases in a market, how does the opportunity cost of supplying to the market change?

Back 35

It's worthwhile to undertake a higher opportunity cost of the item if is in high demand and will yield an opportunity benefit. It's okay to fore-go lost opportunities in order to produce something that is in demand.

Front 36

Why is it erroneous to argue that a firm is gouging when price rises due to greater demand?

Back 36

Because prices are based on demand they are going to be influenced by what people are willing to pay, considering that resource/service is in limited supply.

Front 37

1.How does price represent opportunity cost to a consumer?

Back 37

Price represents an opportunity cost to a consumer since the consumer has only so much money (constraint) and needs x amount of things/services, some necessities are more important than others, so they have to make choices as to how they allocate their money wisely.

Front 38

What is sunk cost, and what are some examples of sunk cost?

Back 38

A sunk cost is a cost previously incurred. It's an irretrievable cost that is not salvageable /resellable in order to recuperate some of the cost used to purchase it, ie: specialized equipment (capital) that can only be used by the firm.

Front 39

Why should decisions be based upon expected costs?

Back 39

To make decisions on sunk costs could lead to opportunity costs, foregone possibilities. Especially if making a decision on sunk costs would mean making an economically inefficient decision (b/c of lack of demand for good).

Front 40

Why are constraints not absolute in the long-run?

Back 40

Incentives compel us to break through the barriers that cause resources to be limited or constrained. Our creativity is not limited and can help us innovate out of any constraint.

Front 41

Why do constraints cause costs?

Back 41

If you have no constraints you have no costs. The greater the constraint, the greater the cost to overcome that constraint.

Front 42

What are several kinds of incentives?

Back 42

Freedom, lively hood, discovery, political/economical/business dominance of a market or whole nations, education, profit

Front 43

What kinds of constraints exist?

Back 43

Government/legal/political, physical, limited material resources, knowledge base, an established market or political structure that gets in the way of dominance, social (oppression of classes & lack of access due to life-station), time.

Front 44

How does the profit incentive work to overcome constraints?

Back 44

Profit can be gained by finding ways to lower marginal costs, these costs are in-part caused by constraints. The profit incentive can also be the catalyst for discovery - the lack of knowledge is also a constraint.

Front 45

What are the intended consequences of entrepreneurs seeking profits?

Back 45

To make a profit, experience personal fulfillment or experience power/status.

Front 46

What are the unintended consequences of entrepreneurs seeking profits?

Back 46

To provide the market with something that is in demand, and thus needed by consumers in order to fulfill their necessities or make life more pleasurable.

Front 47

How do both buyer and seller become wealthier through trading in markets?

Back 47

Buyers become wealthier in terms of being able to satisfy their needs for particular goods/services and sellers become wealthier by accumulating that wealth from the sale of products.

Front 48

What is meant by voluntary cooperation?

Back 48

This refers to the natural forces that are at play when competition is allowed to exist. In order to compete suppliers have to keep their customers satisfied by doing things like being honest, providing customer service, offering customers things they actually demand and at prices that reflect what buyers are willing to pay (not to be confused with what consumers would like to pay).

Front 49

What is marginal utility?

Back 49

The extra satisfaction you derive from consuming a product. It decreases as you consume the product. Your marginal utility has to be high enough to justify the opportunity cost of buying the product to begin with since money is a variable that's constrained. Once you feel satisfied, your marginal utility for the product will be 0, and you will then desire other things which you have a higher marginal utility for.

Front 50

How does price affect the quantity demanded for a product?

Back 50

The lower the price is dropped the more that the product is demanded by those consuming it.

Front 51

How does the principle of marginal utility explain quantity demanded?

Back 51

Marginal utility refers to the amount of extra satisfaction that is experienced when a product has been acquired. As you consume the product your marginal utility lessens to the point that you will replace it with another substitute, thus the demand for this particular product would lessen. Also since consumer's “perceived value” of the item has lowered (due to diminishing marginal utility), the price of the item may be dropped in order to reflect the decreasing demand (and decreased value) for this product.

Front 52

How does price affect the quantity supplied for a product?

Back 52

The higher the prices that the firm perceives will be acceptable in the market place, the more opportunity cost they're willing to incur in order to supply that marketplace. Higher prices means more profit for a business.

Front 53

How does the principle of opportunity cost explain quantity supplied?

Back 53

If a firm is going to incur a higher opportunity cost then it's because they're going to supply the marketplace with as much product as would allow that firm to later be compensated for the opportunity costs incurred. The more they invest, the greater the return they expect (the return derived from sale of supply).

Front 54

What happens with respect to rationing when a market finds its equilibrium price?

Back 54

Forcibly making supply to be available for sale below the equilibrium point causes shortages: caused by supply demanded being greater than supply available.

Front 55

What occurs if a market is not in equilibrium?

Back 55

Shortages: supply demanded being greater than supply available. Surplus: supply greater than the demand.

Front 56

How is a demand curve drawn?

Back 56

The direction of the demand curve is downward.

Front 57

How is a supply curve drawn?

Back 57

The direction of the demand curve is downward.

Front 58

How is equilibrium illustrated with the supply and demand model?

Back 58

Where the downward demand curve and the upward supply curve meet is where “equilibrium” is found: quantity demanded equals quantity supplied. That is how price is determined.

Front 59

What is a surplus, how is it illustrated with the supply and demand model, and why would it not sustain itself in a competitive market?

Back 59

Surplus refers to quantity supplied minus quantity demanded; it's illustrated by the part of the graph that keeps going upward after it intersects with the demand curve.

Front 60

What is a shortage, how is it illustrated with the supply and demand model, and why would it not sustain itself in a competitive market?

Back 60

Shortage refers to quantity demanded minus quantity supplied (quantity supplied decreases when suppliers are discouraged and produce less); it's illustrated by the part of the graph that keeps going downward after it intersects with the supply curve.

Front 61

How could a price ceiling lead to an alternative rationing mechanism?

Back 61

Shortages caused by supply demanded greater than supply available can lead people to seek an alternative rationing mechanism like sharing the product/service, the product may be sold discriminatingly, consumers may bribe or use corrupt methods in order to attain the product. Business reactions: the quality of the good/service could be lowered, business providing it may not be able to operate profitably and thus will no longer offer that good/service, a black market may arise, or the business may seek loopholes so that it won't have to abide by these controls. All these negative consequences are how the consumer will still pay for the “benefit” of these controls in non-monetary ways.

Front 62

How are wages determined in competitive markets?

Back 62

Again where the supply and demand curves meet - at equilibrium.

Front 63

Why do labor supply curves increase with wage and the quantity of labor?

Back 63

The more that a job pays the more attractive it is to a worker to enter that occupation, so there is a greater supply of workers ready to undertake that job.

Front 64

Why do labor demand curves show a negative relationship between wage and the quantity of labor?

Back 64

Because the more the employer has to pay each worker, the less workers they want to hire, since more workers would represent a greater expense to them.

Front 65

Why do wages vary among occupations?

Back 65

Because the supply of skilled workers and demand of available positions all vary depending on the industry. Equilibrium thus will be struck at different spots on the chart for every different occupation which you graph for, in terms of supply/demand.