Micro Econ Quiz 1

Front 1

Economics

Back 1

The study of the allocation of scarce resources to satisfy competing ends

Front 2

What are our scarce resources that we have to allocate?

Back 2

Labor, capital, entrepreneurship, time, and natural resources.

Front 3

Labor

Back 3

scarce resource, people who can produce goods and services.

Front 4

Natural Resources

Back 4

scarce resource, such as land, air, water, minerals, and oil

Front 5

Capital

Back 5

scarce resource, tools equipment, tools. These are scarce because we can use it to do this or we can use it to do that.

Front 6

Entrepreneurship

Back 6

Scarce resource. someone willing to take a risk and combine other things to come up with a new idea.

Front 7

Time

Back 7

Scarce resource, we only have 24 hours in a day we can only do so much we have to make a choice.

Front 8

Resources---

Back 8

For something to be considered a resource it must be capable of doing more than one thing. If not there would be no choice because they can only do one thing. Resources are limited there are unlimited wants so we have to make a choice.

Front 9

4 basic questions every economy must answer.

Back 9

1. What should be produced?
2. how much do we produce?
3. How do we produce it?
4. How to allocate it? Who gets it?

Front 10

Capitalism

Back 10

Private ownership

Front 11

Command economy

Back 11

Public ownership.

Front 12

Market based economy

Back 12

Profits signal where resources should go. WE make our choices to allocate on our profits. The resources go where the profits are because the ownership is private and we get to keep what we make.

Front 13

micro Vs. Macro

Back 13

before the great depression there wasn't a choice. The models quit working however, during the great depression and the split occurred. There was a surplus of workers during the great depression the market should have fixed it by lowering wages so more companies want employees and more people don't want to work. If people aren't buying the government has to buy it.

Front 14

Micro

Back 14

Will work well the market will always balance.

Front 15

In macroeconomics we look at

Back 15

total or aggregate output or GDP. Total levels of unemployment, inflation rate (CPI), fiscal policy--taken by president setting tax and spending policies, monetary policy--undertaken by the Fed. reserve bank. They set interest rates and control the supply of money imports and exports.

Front 16

In Microeconomics we look at

Back 16

individual parts of the economy. Individual household behavior (demand), individual firm behavior (supply), individual markets (such as the gas price or the supply of snow boots), policies aimed at particualr markets (what happens when the government raises the cigarette tax?)

Front 17

Normative Economics

Back 17

People's opinions. Subjective. Value judgements.

Front 18

Positive Economics

Back 18

Objective. Can be proven true or false.

Front 19

Economics is what kind of a science?

Back 19

Social Science

Front 20

Social Science

Back 20

Social science means we are looking at what people do and since humans are wacky we have different results than we sometimes anticipate.

Front 21

What is economics known as?

Back 21

The dismal science because economists rain on your parade.

Front 22

opportunity cost

Back 22

What we give up by not making the alternative choice. It costs you the next best option.

Front 23

Marginal

Back 23

Extra or additional

Front 24

How do people make decisions?

Back 24

By weighing the marginal benefit vs. the marginal cost. If the benefit outweighs the cost the person makes the choice.

Front 25

What do economists believe people do in relation to their decisions?

Back 25

They assume that people make decisions that are rational or are in their self interest.

Front 26

how do we get different decisions?

Back 26

Everyone is acting on their own information set and own constraints so we see diff. behaviors and make diff choices.

Front 27

Negative incentive

Back 27

These increase the cost or decrease the benefit. Aka increasing fines or increasing jail time.

Front 28

Positive incentive

Back 28

increase benefit or lower cost. If we want to increase safety we can lower the speed limit or increase safety requirements in cars.

Front 29

The law of unintended consequences

Back 29

People feel safer and they drive even faster. This leads to more deaths. You get the opposite result than what you expected.

Front 30

Fallacy of composition

Back 30

It is not necessarily true that what is true for one is true for an entire group. Exp. If you are at a show and someone tall sits in front of you you can stand up. If everyone stands up you are no better off.

Front 31

Correlation

Back 31

2 variables appear to be either directly or inversely related.

Front 32

Simplifying assumption

Back 32

We assume other things being equal or constant. Ceteris paribus. We pick out two variables and hold other things equal.

Front 33

What is the latin word for other things equal

Back 33

ceteris paribus

Front 34

Dependent variable

Back 34

variable of interest

Front 35

Independent variable

Back 35

Variable that changes first and causes the change in the other dependent variable.

Front 36

in economics where does it go? X or Y axis?

Back 36

X axis-dependent, Y axis-independent

Front 37

slope euqation

Back 37

slope=rise/run
change in P/Change in Q

Front 38

Equation of a line

Back 38

y=mx+b

Front 39

In the equation of a line b=

Back 39

the y intercept.

Front 40

Scientific method steps

Back 40

1. observation of the real world
2. hypothesis
3. hypothesis test
4. accept, reject, or nullify
5. develop an economic principle

Front 41

Budget Line

Back 41

Explores if we have a limited resource, money, what we can purchase if we allocate it to resource A or resource B. Always has a 1 to 1 ratio and should be a straight line.

Front 42

Production Possibilities Curve

Back 42

Works like a budget line except it is more general.

Front 43

PPC Assumptions

Back 43

1. 2 goods are produced. They can be either consumer goods or capital goods.
2. Our resources are fixed.
3. Technology is fixed/constant.
4. Full employment of resources.

Front 44

Consumer Good PPC

Back 44

Food, clothing, medical supplies, Goods the satisfy our wants directly when we use or consume them.

Front 45

Capital Good PPC

Back 45

Plant, equipment, tools, These satisfy our wants indirectly by increasing productivity and helping to produce more in the future.

Front 46

The PPC illustrates:

Back 46

Everything we talk about in economics. It illustrates scarcity because anything outside of the PPC is unattainable due to scarce resources. If we are at a point inside the curve we can move outward without giving anything up because we are not opperating efficiently. If we are on the PPC curve we do have an opportunity cost to move along it because we are operating at full employment and we can either make more of one thing or more of the other.

Front 47

Law of Increasing Opportunity Cost

Back 47

As you produce more of one good the opp cost of producing it increases.

Front 48

Why is the Law of Increasing Opportunity Cost true?

Back 48

It is true because of specialization. In the budget line, which has a 1 to 1 ratio, money is equally adapted to purchasing either one. However, when we get into producing wheat or guns, when we want to produce wheat we start with 3 fields that are on prime location for growing. However, as we want to produce more wheat we have to start planting on worse land so we need more land to produce a small increase in wheat production. So there is less land available to produce Guns now.

Front 49

What happens if you change the PPC assumptions?

Back 49

1. Change in the quantity of resources. THis could be caused by a change in immigration laws which allows the labor force to increase. When we have an increase in resources we can produce more stuff so the PPC shifts out. When we have a decrease in resources, such as a natural disaster, the PPC shifts inward because capital is destroyed and people flee the area.
2. Change in quality of resources.
this can be caused by an increase in technology that would cause the PPC to shift outward or if the people are better educated they can perform tasks more efficiently and the PPC shifts outward.

Front 50

What happens if there is a change in quantity of resources in the PPC

Back 50

If they increase the PPC shifts outward and production increases.
If they decrease the PPC shifts inward and production decreases.

Front 51

What happens to the PPC when the quality of resources change

Back 51

If the quality increases such as technology gets better or workers are more educated the PPC shifts outward and production increases.
If the quality decreases and a computer crash occurs then the curve shifts inward and we can produce less stuff.

Front 52

What happens if we have a technological breakthrough that allows us to produce one item cheaper?

Back 52

Well since we can produce one item cheaper, the PPC stays the same for the other item and shifts outward on the end of the item that is now able to be produced cheaper. This also allows us to increase production of the other item because we have more resources to allocate to its production.

Front 53

How can a politician who says I will increase healthcare without giving up anything else be telling the truth?

Back 53

If we are currently operating inefficiently he can shift us to be on the PPC. Or if there is an advance in technology.

Front 54

Which point on the PPC should the US choose? What's wrong with this question?

Back 54

Normative statement. Economics cannot tell us what we SHOULD do just what will happen based on the decision we decide to make.

Front 55

Which of the following is NOT an opp cost you incur if you see a Royals baseball game? A) the parking fee, if you drive to the park, B) the exorbitant price you paid for a hot dog, C) the time spent in the after game traffic jam, D) the ticket given to you by a friend who couldn't go to the game.

Back 55

D

Front 56

Which of the following is most likely an example of a macroecon topic? A) an increase in the price of pizza, B) a decrease in the unemployment rate, C) The entry of new firms into the software industry, D) a decrease in the production of DVDs by a consumer electronics company

Back 56

B

Front 57

Which of the following is LEAST likely to shift the production possibilities curve outward? A) the discovery of new natural resources, B) a change in preferences away from one good and toward the other good, C) a reduction is people's preferences for leisure i.e. people wanna work more, D) an invention that reduces the amount of natural resources necessary for producing a good.

Back 57

B

Front 58

Which of the following is a normative statement? A) the main goal of the govt. should be to achieve an annual growth rate for the economy of 7%, B) due to advances in health care, people live longer and, therefore, social security expenses have increased, C) unemployment increased last year, even though the govt, sector followed an expansionary economic policy, D) a 5% decrease in ppl's income will lead to a 3% decrease in ppl's consumption of pizza.

Back 58

A

Front 59

In making choices people find that: A) resources are scarce and that they cannot do everything or have everythiong they want, B) the real cost of a choice is what you give up to make that choice, C) people make choices that will make them better off, D) all of the above.

Back 59

D

Front 60

A point inside the PPC represents: A) a growing economy, B) a fully employed economy, C) a situation of unemployed or inefficient use of resources, D) All of the above

Back 60

C

Front 61

In a market based economy like the US, the question of "how to produce" is determined by: A) the least cost method of production, B) the distribution of income, C) consumer demand, D) none of the above

Back 61

A

Front 62

A company believing that offering airline frequent flyer miles with the purchase of their product will lead to increased sales is following which key economic idea? A) people think at the margin, B) people respond to incentives, C) information is important, D) markets are efficient.

Back 62

B

Front 63

When Ross decides whether or not he should eat another dessert, an economist would say that he : A) considers how much additional exercise he will need to avoid gaining weight from eating the dessert, B) considers whether he can do so without anyone else noticing, C) compares the benefits and costs of eathing another dessert, D) only considers the price of the dessert

Back 63

C

Front 64

Which of the following statemtns is true? A) People usually make choices without regard to the additional benefits and costs of those choices, B) the incentives or rewards for certain types of behavior, rarely influence people's decisions at the margin, C) If people were less wasteful we could eliminate problems due to scarcity of resources, D) people consider the opp costs of their choices.

Back 64

D