question
What is economics?
answer
the study of how people manage resources
question
How do individuals make decisions?
answer
Rational Behavior: behave in the way that will best achieve their goals
question
What is scarcity?
answer
the condition of peoples' wants that are greater than available resources
question
What is opportunity cost?
answer
equal to the value of what you have to give up in order to get something
question
What is marginal decision making?
answer
comparing additional benefits of a choice against the additional
question
What are sunk costs?
answer
costs that already occurred and cannot be taken off from calculation
question
What is a positive incentive?
answer
make people more likely to do something by lowering their opportunity cost
question
What is a negative incentive?
answer
make people less likely to do something by raising their opportunity cost
question
What is efficiency?
answer
resources are used to produce goods and services with a greater economic value
question
What are three reasons why an assumed casual relationship may be false?
answer
1. correlation without causation
2. omitted variables: two events may be extremely correlated due to a third event causing the two
3. reverse causation: unclear whether event A causes event B or vice versa
2. omitted variables: two events may be extremely correlated due to a third event causing the two
3. reverse causation: unclear whether event A causes event B or vice versa
question
What makes a model useful?
answer
1. makes clear assumptions
2. describes the real world accurately
3. predicts cause and effects
2. describes the real world accurately
3. predicts cause and effects
question
What is a positive statement?
answer
a statement that makes factual claim how the world actually works
question
What is a normative statement?
answer
a statement that makes a factual claim how the world ought to be
question
What is the Production Possibilities Model?
answer
analyzes the production possibilities or an individual or country
question
What is the Production Possibilities Frontier?
answer
a line or curve that shows all the possible combinations of two outputs that can be produced using all available resources
question
When can a country have a comparative advantage?
answer
if they can produce a good at a lower opportunity cost than other countries
ex- Canada: 1 bushel of wheat costs 1/4 of a shirt
China: 1 bushel of wheat costs 1/2 of a shirt
ex- Canada: 1 bushel of wheat costs 1/4 of a shirt
China: 1 bushel of wheat costs 1/2 of a shirt
question
What is elasticity?
answer
measure of the responsiveness to a change in a market condition
question
What is price elasticity of demand?
answer
measures the change in the quantity demanded from a change in price
question
What is the price elasticity formula?
answer
[(Q2-Q1)/Q1x100] /
[(P2-P1)/P1x100]
[(P2-P1)/P1x100]
question
What is the midpoint method formula?
answer
(Q2-Q1)/[(Q2+Q1)/2] /
(P2 - P1)/[(P2+P1)/2]
(P2 - P1)/[(P2+P1)/2]
question
What is the price elasticity of supply?
answer
measures producers' response (in quantity) to a change in price
question
What is the cross price elasticity of demand?
answer
measure of how the quantity demand of one good changes when the price of a different good changes
question
If elasticity if greater than zero, then?
answer
good are substitutes
question
If elasticity is lower than zero, then?
answer
good are complements
question
If elasticity is greater than 0, the good is ________
If elasticity is lower than 0, the good is ________
If elasticity is greater than 1, the good is ________
If elasticity is lower than 0, the good is ________
If elasticity is greater than 1, the good is ________
answer
normal
inferior
luxuary
inferior
luxuary
question
What is the total surplus formula?
answer
TS = CS + PS
question
What is market equilibrium?
answer
a situation in which quantity demanded equals quantity supplied
question
What is deadweight loss?
answer
loss of total surplus that results when the quantity of a good that is bought and sold is below the market equilibrium quantity
question
What is a missing market?
answer
situation when there is no market because the functions of prices have broken down
question
What are the reasons why a government may intervene in a market?
answer
-correcting market failures
-changing the distribution of benefits
-encouraging or discouraging consumption of certain goods
-changing the distribution of benefits
-encouraging or discouraging consumption of certain goods
question
What is a subsidy?
answer
producers or consumers receive an extra amount paid by the government
question
What are the two primary effects of subsidies?
answer
encourages production and consumption
question
What is utility?
answer
a measure of the amount of satisfaction (dissatisfaction) a person derives from somethingQ
question
What is marginal utility?
answer
the change in total utility from consuming an additional unit of good or service
question
What is altruism?
answer
unselfish regard for the welfare of others
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