Macro Exam 1 Leeron

Front 1

Is Life Getting Better or Worse? (Name the 5 factors)

Back 1

Life Expectancy, Health, Income, Education, and Entertainment

Front 2

Economicsis

Back 2

the study of how we make choices under scarcity.

Front 3

The act of selecting among alternatives

Back 3

choice

Front 4

The concept that there is less of a good freely available from nature than people would like.

Back 4

Scarcity

Front 5

Allocating scarce goods to those who want them.

Back 5

Rationing

Front 6

In a market economy, _____ is used to ration goods

Back 6

price

Front 7

What leads to competitive behavior?

Back 7

Scarcity

Front 8

Aninput used to produce an economic good

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Rescources

Front 9

3 types of resources:

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1. Human resources (human capital)

2. Physical resources (physical capital)

3. Natural resources

Front 10

Human-made resources used to produce other goods and services.

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Capital

Front 11

The highest valued alternative that must be sacrificed whenchoosing an option

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Opportunity Cost

Front 12

Individuals are rational:

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they try to get the most from their limited resources.

Front 13

choice is influenced in apredictable way by changing _________.

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incentives

Front 14

Describes the effect of a change in the current situation

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marginal

Front 15

one will undergo an action when the marginal benefits outweigh the marginal costs*

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Cost benefit analysis

Front 16

Information helps us make better choices, but is costly. Give an example:

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Need information on a house but not a notebook.

Front 17

the indirect impact of an event or policy that may not be easily and immediately observable.

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Secondary effects

Front 18

The value of a good or service is subjective (T/F)

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True

Front 19

The test of a theory is its abilityto _______.

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Predict

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Positiveeconomics:

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the scientific study of what is. (testable)

Front 21

Normative economics:

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Judgments about what people think “ought to be”. (not testable)

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other things constant

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ceterisparibus

Front 23

4pitfalls to avoid in economic thinking:

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1. Violation of ceteris paribus principle

2. Good intentions do not guaranteedesirable outcomes

3. Association is not causation

4. Fallacy of composition: beliefthat what is true for one might not be true for all

Front 24

Good intentions do not guaranteedesirable outcomes examples:

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Suicide warnings on antidepressant

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belief that what is true for onemight not be true for all

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Fallacy of composition

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focuses on how human behavior affects theconduct of affairs within individually defined units such as households orfirms (the trees)

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Microeconomics

Front 27

focuses on how human behavior affects outcomes in highly aggregated markets such as the nations market for labor (the forest).

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Macroeconomics

Front 28

Trade creates values

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Because the value of goods is subjective, voluntary trade creates value

Front 29

When Individuals engage in voluntary exchange,

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both parties are made better off.

Front 30

Channeling goods and resources to those who value them most

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increases the wealth created by a society’s resources

Front 31

The creation of wealth:

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The process by which some peoplebecome rich will make everybody richer.

Front 32

Private property rights involve:

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1.The right to exclusive use of the property 2.Legal protection against invasion from other individuals

3.The right to sell, transfer, exchange, or mortgage the property

Front 33

What are the 4incentives of property rights?

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1. Incentive to use resources in ways that areconsidered beneficial to others.

2. Private owners have an incentiveto care for and manage what they own

3. Private owners have an incentiveto conserve for the future

4. Private owners have an incentiveto make sure their property does not damage your property

Front 34

Lack of property rights =

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lack of economic progress

Front 35

Production possibility curveoutlines all possible combinationsof total output that could be produced, assuming a:

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1. fixed amount of productive resources

2. given amount of technical knowledge

3. full and efficient use of resources

Front 36

In a ppc where are the Efficient points, Inefficient points, Unattainable points

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Efficient: On the curve

Inefficient: Area inside the curve

Unattainable: Area outside of the curve

Front 37

What are the 4factors that shift the PPC?

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1. A change in the economy’s resource base

2. Changes in technology

3. A change in the rules underwhich the economy functions

4. Changes in work habits

Front 38

The total output of a group ofindividuals, an entire economy, or a group of nations will be greatest when theoutput of each good is produced by whoever has the lowest opportunity cost.

Back 38

Law of Comparative Advantage

Front 39

Every economy faces 3 questions:

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1.What will be produced?

2.How will it be produced?

3.For whom will it be produced?

Front 40

Capitalism:A system of economic organization where:

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1.Productive resources are owned privately 2.Goods and resources are allocated through market prices

Front 41

amethod of organization in which private parties make their own plans anddecisions with the guidance of market prices

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Market Organization

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Socialism:a system of economic organization where:

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1.Ownership and control of the means of production rest with the state

2.Resource allocation is determined by centralized planning

Front 43

themethod of organization that relies on public sector decision making to resolvebasic economic questions.

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Collective decision making

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the demand curve:

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As price increases, quantitydemanded decreases.

Front 45

The difference between the maximum amount consumers would be willing to pay andthe amount that they actually pay.

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Consumer surplus

Front 46

Change in quantitydemanded:

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A movement along the curve Caused by a change in the price of that good

Front 47

what are the shifters of the demand curve?

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1. Change in consumer income

2. Change in the number of consumers

3. Change in the price of a related good

4. Change in expectations

5. Change in consumer tastes and preferences

Front 48

There is adirect relationship between the price of a good or service and the amount thatsuppliers are willing to produce

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The law of supply

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The difference between theminimum price suppliers are willing to accept and the price they actuallyreceive.

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Producer surplus

Front 50

Change in quantitysupplied:

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a movement along the curve Caused by a change in the price of that good

Front 51

Shifters of supply:

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1. A change in resource price

2. A change in technology

3. Changes in nature and politics

4. Changes in taxes

Front 52

Changes in quantity arenotsensitive to changes in price

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Inelastic

Front 53

inelastic curves are ____.

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steeper

Front 54

Changes in quantity aresensitiveto changes in price.

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Elastic

Front 55

elastic curves are ______.

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elastic curves are flatter

Front 56

If Demand increases

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Price increases

Quantity increases

Front 57

If Supply increases

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Price decreases

Quantity increases

Front 58

Thetendency for people, while pursuing their own interests, to promote theeconomic well-being of society.

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Invisible hand principle

Front 59

The government should…

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1. Protect individuals and their property rights 2. Provide goods that cannot be easily provided by the market

Front 60

Size of government is indicated bygovernment expenditures as a percentage of ______.

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U.S. GDP

Front 61

transfers of income from someindividuals to others (social security, unemployment benefits, welfare, etc.)

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Transfer Payments

Front 62

arational individual can have little or no incentive to acquire the informationneeded to cast an informed vote.

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Rational Ignorance Effect

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the chance that your vote was the deciding vote multipliedby how much you care that a certain candidate wins

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Marginal benefit of voting

Front 64

the cost of informing yourself (information is costly),registering to vote, and actually voting.

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Marginal cost of voting

Front 65

The idea that a vote maximizing politician in a two party system will be closeto the middle so that there is little difference between candidates, and thepreferences of the median voter will be represented.

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Median voter theory

Front 66

requirespeople who use a service more to pay a larger share of the cost.

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user charges

Front 67

Whenthe political process does not work

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1.SpecialInterest Effect

2.ShortsightednessEffect

3.RentSeeking

4.Lackof Profit Motive

Front 68

An issue that generates substantial benefitsfor a small group by generating minimal costs to a large group. (in aggregate,losses may exceed benefits).

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Special interest effect

Front 69

How is special interest effect done?

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Logrolling and Pork-barrel legislation

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Logrolling

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The practice of trading votes by a politician to get the necessary support to pass desired legislation

Front 71

Pork-barrel legislation

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a package of spending projects benefiting local areas financed through the federal government

Front 72

politicians will favor programs that generatecurrent visible benefits, even if long-term costs of the project outweighs thebenefits.

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Shortsightedness Effect

Front 73

Actions taken by individuals and groups inorder to use the political process to take the wealth of others.

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Rent seeking

Front 74

Unlike private firms, the public sector lacksthe incentive to produce efficiently.

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Lack of profit motive

Front 75

The market value of all final goods and servicesproduced within a countryduring a specific period(usually a year)

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Gross Domestic Product (GDP)