Econ 102 Exam 1

Front 1

Scarcity

Back 1

The limited nature of society's resources

Front 2

Economics

Back 2

The study of how people allocate their limited resources to satisfy their nearly unlimited wants; they study of how people make decisions

Front 3

Rationality Assumption

Back 3

People do not intentionally make decisions that would leave them worse off

Front 4

Self-Interest

Back 4

The pursuit of one's goals, does not always mean increasing one's wealth; ex: prestige, friendship, love

Front 5

Incentives

Back 5

Something that incites or tends to incite to action or greater effort, as a reward offered for increased productivity

Front 6

Positive Incentives

Back 6

Things that make you feel good; rewards

Front 7

Negative Incentives

Back 7

Punishment

Front 8

Direct Incentives

Back 8

Primary change in behavior; ex: gives $100 to work harder

Front 9

Indirect Incentives

Back 9

Secondary changes in behavior; not intended; got something you didn't want; can be good or bad changes

Front 10

Unintended Consequences

Back 10

An unplanned result, usually negative and unwanted, of an incentive; remember: Office video

Front 11

Microeconomics

Back 11

The study of decision making undertaken by individuals, or households, and firms; focuses on the individual parts of the economy

Front 12

Macroeconomics

Back 12

The study of the behavior of the economy as a whole; deals with economy-wide phenomena, aggregates or totals

Front 13

Scientific Method of Economics

Back 13

1) Construct a theory or hypothesis
2) Design experiments to test the theory
3) Collect data
4) Revise or refute the theory based on evidence

Front 14

Positive (not meaning good) Statement

Back 14

A claim that can be tested to be true or false; can be accepted or rejected as a fact

Front 15

Normative Statement

Back 15

Statement of opinion, cannot be tested to be true or false; what "ought to be" or "should be"

Front 16

Economic Models

Back 16

Simplified versions of reality; built with some assumptions; are considered good if they predict accurately

Front 17

Ceteris Paribus

Back 17

Latin: "other things being equal"; assumption in which we examine change in one variable, but hold all other variables; allows us to isolate the effect of a single; think: dependent and independent variables

Front 18

Endogenous Factors

Back 18

Variables controlled for inside a model; ex: the design on a paper plane; independent variables we freely change in the model equations to study their effect on the dependent variable

Front 19

Exogenous Factors

Back 19

Variables that are not accounted for in a model; outside our control; something not expected

Front 20

Production

Back 20

Activity that results in the conversion of resources into products that can be used in consumption; converting input into output

Front 21

Opportunity Cost

Back 21

The highest-valued, next-best alternative that must be sacrificed to obtain something or satisfy a want; what you give up; cost-benefit analysis

Front 22

Marginal Thinking

Back 22

Evaluate whether the benefit of 1 more unit of something is greater than the cost

Front 23

Production Possibilities Curve

Back 23

Combinations of outputs that a society can produce if all of its resources are being used efficiently

Front 24

Efficient Points

Back 24

Points on the PPC

Front 25

Inefficient Points

Back 25

Points inside the PPC

Front 26

Unattainable points

Back 26

Points outside the PPC

Front 27

"Low Hanging Fruit" Principle

Back 27

Going to grab the fruit hanging from the tree before you grab from the top; when expanding production, use resources with lowest opportunity cost first

Front 28

Absolute Advantage

Back 28

One person can perform each task more effectively than the other person

Front 29

Consumer Goods

Back 29

Goods produced for current consumption; ex: soda, shorts

Front 30

Capital Goods

Back 30

Goods that help produce other valuable goods; ex: buildings, roads, machinery, etc.

Front 31

Investment

Back 31

Using resources to make new capital