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88 Cards in this Set

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ECONOMICS CHAPTER 1
ECONOMICS CHAPTER 1
Define economics
the study of how people choose to use their limited resources to produce, exchange, and comsume goods and services
Economics is the study of;
the decision process in choosing the most efficient way to allocate scarce resources to satisfy our wants to maximum extent possible
Who is involved in economics
individually, firms or countries
Who has the largest economy of the world
USA
Define scarcity
limited resources trying to satisfy unlimited wants: eg: Jamestown had "smiths" but no farmers
Define per capita output or per capita GDP
basic measure of standard living
How do you calculate or compute per capita output
divide total output by the population
Fill in blank: _______ _______ output is a basic measure of standard living
per capita
The Jamestown colonists were drawn to the New World by:
a. economic motivation
b. desire for political freedom
c. desire for religious freedom
d. none of the above
a - economic motivation
In 1960 GDP for the US was $2,502 billion (measured at 2000 price level) and the population was 180.780 million. Per capita GDP in 1960 was:
a. $7047
b. $12,700
c. $13,840
d. $28380
c - $13,840
Most of theUS economic growth between 1790 and 1860 was caused by:
a. central planning by the US government
b. the development of computers
c. growth in industrial productivity due to the industrial revolution
d. imporvements in agricultural productivity
d- imporvements in agricultural productivity
Between 1860 adn 1929, per capita output in the US:
a. quintupled
b. doubled
c. increased by 50%
d. stayed same
b - doubled
Copared to 1790, the standard of living today is;
a. about the same
b. nearly 3 times as high
c. about 5 times as high
d. about 15 times as high
d - about 15 times as high
In the 20th century, the poverty rate in the US:
a. decreased from 90%-12%
b. decreased from 50%-10%
c. decreased from 20%-15%
d. stayed same
a - decreased from about 90% to 12%
In the 20th century life expectancy in the US:
a. remained steady
b. decreased slightly due to the rising murder rate
c. increased by almost 10 years
d. increased by almost 30 years
d- increased by almost 30 years
Per capita output in the US in 2004 was:
a. $28,700
b. $31,500
c. $40,100
d. $48,700
c - $40,100
Of the 30 largest national economies, the one with the lowerst per capita GDP in 2004 was:
a. Pakistan
b. Egypt
c. India
d. Indonesia
a - Pakistan
Of Japan, Germany, France and Canada the one with teh highest per capita GDP in 2004 was:
Canada
In 2004 the sum of GDP for Japan, Germany and the United Kingdom, France, Canada and Mexico was:
a. about triple of US
b. about double of US
c. about 1 1/2 X's US
d. almost as great as US
d - almost as great as US
Describe the initial economic struggles of the Jamestown colonists
struggled to prduce enough output to sustain life. 105 original colonist, only38 alive when 2nd group arrived. Then, 214 but 1 yr later only 60 alive.
Describe the economic cost of the Civil War
600,000 died. 500,000 wounded. Total cost of war estimated at $6.7 billion - about double of national income of 1860
List in order the four largest national economies in 2004:
1. USA
2. China
3. Japan
4. India
What is the basic economic problem
scarcity
What is one side of the problem of scarcity
Human wants are unlimited: strandad on an island surrounded by coconut milk and honey but you will want chocolate...
What is the second side of the problem of scarcity
Even in the most productive societies it isn't possible to produce all of everything that everyone wants
Define Scarcity as outlined in section 1:2
the problem that human wants exceed the production possible with the limited resources available
What is the fundamental focus of economics
how individuals and societies attempt to deal with the problem of scarcity
Define Economocs as outlined in section1:2
the study of how individuals and societies use their limited resources to try to satisfy their unlimited wants
What is the basic goal in dealing with the problem of scarcity
produce as much consumer satisfaction as possible with the limited resources available. Impossible to satisfy all human wants
Define resources
the inputs that make production possible
Name the four broad categories that make up resources
1. labor
2. land
3. capital
4. enterpreneurship
Define labor as it pertains to resources
physical and mental efforts that people contribute to production, depends largely on amount of human capital the the labor force develops.
Define human capital
developed ability that increases a person's productivity; primarily thru education, training and work experience
Define Land as it pertains to resources
the naturally occuring resources such as unimproved land, minerals, fossil fuels, forests, water and weather
Define capital as it pertains to resources
produced goods that are used in production of other goods. Hwy's, harbors, airports, railroads, factories, warehouses, machinery, etc.
Define enterpreneurship as it pertains to resources
special skill involved in organizing labor, land and capital for production. Entrepreneurs start new business, new production techniques, & new products.
What is the motivation of entrepreneurs
profit-maximization
According to Adam Smith will the resource owner's pursuit of self-interest benefit or serve the best interest of society?
Yes, it will generally. By pursuing his own interst he frequently promotes that of society more effectually than when he really intends to promote it
Why does the resource owner's pursiut of self-interest generally serve the best interst of society? (2 reasons)
1. Resource owners will direct their resources to the use that is most highly valued by consumers. 2. Resource owners will use their resources as efficiently as possible
Define Opportunity cost
the value of the best alternative surrendered when a choice is made. If resources are used to make good A, then they aren't availble to make good b. When Cindy quit the Sonics to join Army, her opportunity cost was $ she could've had w/Sonics
What is the primary rationing device in the US economy
dollar price, meaning that resources will be rationed to the use that is most highly valued by consumers.
How are economic decisions made
comparing the marginal (extra, additional) benefits of a choice w/marginal costs.
List the 4 scientific thinking methods
1. realizing tha association doesn't necessarily indicate causation. 2. Avoiding the fallacy of composition. 3. Distinguishing between positive and normative statements. 4. Assuming ceteris paribus when examing the relationship between variables
Define what is meant by realizing that association doens't necessarily indiace causation in referene to scientific thinking
Association: I studied more & my test grade improvved.
Causation: test grade improved
Association: I painted my toenails blue & my test grade improved. No connection
Define avoiding the fallacy of composition as it relates to scientific thinking
The fallacy is an idea that what is true for one must be true for the group - which is not necessarily true
Discuss distinguishing between positive statements and normative statements as it pertains to scientific thinking
Positive: describe the way things are, can be tested for accuracy.
Normative: propse way things ought to be, express value judgments & cannot be tested for accuracy
Define assuming ceteris paribus when examining the relationship between variables as it pertains to scientific thinking
means "all other things held constant" Other variables must be held constant if we are to arrive at actual relationship between the varibles we are examining
Define macroeconomics
branch of economics that focuses on overall economic behavior. Inflation, unemployment, economic growth, budget deficits, trade deficits, etc.
Define microeconomics
branch of economics that focuses on components of the economy. Households, firms, markets, specific industried, etc.
Define graphs
illustrat the relationship between 2 variables.
What does an upward sloping curve indicate on a graph
direct relationship between the variables
What does a downward sloping curve indicated on a graph
an inverse relationship between the variables
What does a horizontal curve or a vertical curve indicate on a graph
the variables are unrelated to each other
Know that the slope of a curve is the ratio of the vertical change to the horizontal change as the graph is read from left to right
Slope = Change in Y varible divided by Change in X variable = (Y2-Y1) divided by (X2-X1)
Fill in the blank: ________ is the problem that human wants exceed the production possible with the limited resources available
scarcity
Fill in the blank: _________ is the study of how individuals and societied use their limited resources to try to satisfy their unlimied wants
Economics
Fill in the blank: _________ are the inputs that make production possible
Resources
Fill in the blank: _________ refers to the physical and mental efforts that people contribute to production
labor
Fill in the blank: _________ ________ is developed ability that increases a person's productivity
human capital
Fill in the blank: _________ referes to the naturally occurring resources
land
Fill in the blank: _________ refers to produced goods that are used in the production of other goods
capital
Fill in the blank: _________ is the special skill involved in organizing labor, land and capital for production
entrepreneurship
Fill in the blank: _________ cost is the value of the best alternative surrendered when a choice is made
opportunity
Fill in the blank: _________ statements claim to describe the way things are
positive
Fill in the blank: _________ statements propose the way things ought to be
Normative
Fill in the blank: _________ focuses on overall economic behavior
macroeconomics
Fill in the blank: _________ focuses on components of the economy
microeconomics
Fill in the blank: _________ illustrate the relationship between 2 variables
graphs
On a graph, an upward sloping curve indicates a(n) _________ relationship between the variables
direct
The ______ of a curve is the ratio of the vertical change to the horizontal change as the graph is read from left to right
slope
The basic economic problem is scarcity because
a. human wants are unlimited and resources are limited
b. there are never enough jobs for all the people who want to work
c. there is never enough money to consume what we want
d. human wants are limited and resources are unlimited
a - human wants are unlimited and resources are limited
If the US could triple its per capita income:
a. all economic problems would be solved
b. everyone could consume all that they wanted
c. the basic economic problem would still be scarcity
d. both a and b
c- the basic economic problem would still be scarcity
The basic gaol in dealing withe the problem of scarcity is:
a. to produce as much consumer satisfaction as possible with the limited resources available
b. to decrease human wants until they are consistent with the resources available
c. to satisfy all human wants
d. both b and c
a - to produce as much consumer staisfaction as possible w/limited resources available
____ refers to the natyurally occuring resources
a. labor
b. land
c. capital
d. entrepreneurship
b - land
In a competitive market the self-interest of the resource owners will cause resources to be directed:
a. to the use that is most highly valued by consumers
b. to a use that harms society
c. to their most convenient use
d. in a random way
a - to the use that is most highly valued by consumers
Using dollar price as the rationing device means:
a. that resources will be rationed to the use that is most highly valued by consumers
b. that goods will be rationed to the consumers who are willing and able to pay the most
c. both of the above
d. none of the above
c - both of the above
The optimal level of an activity occurs where
a. the marginal benefit is maximized
b. The excess of marginal benefit over marginal cost is maximized
c. the marginal benefit and the marginal cost are equal
d. either a or b
c - the marginal benefit and the marginal cost are equal
"If I have more money, I will be better off. Therefore, if everyone has more money everyone will be better off." this is an example of:
a. the association-causation issue
b. the fallacy of composition
c. the ceteris paribus assumption
d. all of the above
b - the fallacy of composition
Which of hte following is a normative statement
a. The unemployment rate in March 2006 was 5.1%
b. American and Europena companies employ over 2 mill workder at call centers in India
c. The federal government should fine US companies that outsource jobs to foreign countires
d. None of the above
c - The federal government should fine US companies that outsource jobs to foreign countires
Each morning Homer buys 2 donuts. Yesterday he received a salary increase. Today the price of donuts was up by .05 and he bought 3. Does this prove that people will buy more donuts as the price of donuts increases
a. yes, it is simple cause and effect
b. no, only proves that he wil buy more as the price increases - fallacy of ocmposition
c. no, since he received a salary increase we have failed the ceteris paribus assumption. All things are not constant
d. Doh!
c - no, since he received a salary increase we have failed the ceteris paribus assumption. All things are not constant
(Card *)


When the value of eh X variable is 4, the value of hte Y variable is 2. When the value of hte X variable is 8, the value of the Y variable is 6. A line connecting the 2 points just described would run from points:
a. A-B
b. B-C
c. C-D
d. B-D
d - B-D
The slope of the curve connecting the 2 points described on card * is:
a. 1/2
b. 1
c. 3
d. -2
b - 1
The 2 points described on card * indicate a(n):
a. direct relationship
b. inverse relationship
c. independent relationship
a - a direct relationship
If the value of one variable on a graph remains the same while the value of the other variable increases there is;
a. direct relationship
b. no relationship
c. an inverse relationship
d. none of the above
b - no relationship
List and define the 4 categories of resources:
1. labor: the physical and mental efforts people contribute to production
2. land: naturally occurring resources
3. Capital: produced goods used in production of other goods
4. Entrepreneurship: special skill involved in organizing labor, land & capital for production
Explain the role of entrepreneurs in the economy
organize labor, land and capital fro production. Starn new businesses, deveop new prodcution techniques and introduce new products. Generally motivated by profit-maximization, also bear risk of loss.
Explain why resources owner's pursuit of self-interest will generally serve the best interest of society
most have a self-interest to generate maximum profit from use of their resources. In competitive markets, this pursuit of profit-max will lead the resources owners towards either resources that is most highly valued or use resources as effecietnly as possible