ECON131 C1

Positive Question

A question that can be answered using available information or facts

Normative Question

A question that is based on societal beliefs on what should or should not take place

The economics of uranium mining would be studied in

microeconomics.

Which of the following is a key idea in economic thinking?

Incentives matter.

Key Principles of Economics

1. Economics Is Concerned with Making Choices with Limited Resources 2. When Making Decisions, One Must Take Into Account Tradeoffs and Opportunity Costs 3. Specialization Leads to Gains for All Involved 4. People Respond to Incentives, Both Good and Bad 5. Rational Behavior Requires Thinking on the Margin 6. Markets Are Generally Efficient; When They Aren't, Government Can Sometimes Correct the Failure 7. Institutions and Human Creativity Help Explain the Wealth of Nations

Model

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements

Ceteris Paribus

Assumption used in economics (and other disciplines as well), where other relevant factors or variables are held constant

When Making Decisions, One Must Take Into Account Tradeoffs and Opportunity Costs

Choice and scarcity force tradeoffs because we face unlimited wants but limited resources. We must make tradeoffs in nearly everything we do. Opportunity costs are resources (e.g., time and money) that could be used in another activity. Everything we do involves opportunity costs, the value of the next best alternative use of our resources.

Which of the following is NOT an example of market failure?

Competition leads firms to provide products at the lowest possible price.

Rational behavior requires "thinking at the margin." Which of the following is an example of this type of thinking?

Deciding whether a second burger is worth the extra $2 Deciding whether your overtime pay is worth working on Saturday (your day off) Deciding whether to pay a fine for polluting the local harbor or installing antipollution machinery

Economics Is Concerned with Making Choices with Limited Resources

Economics involves making decisions to maximize one's well-being, which can come from many sources, including money, time, happiness, or a fortuitous event.

Efficiency

How well resources are used and allocated. Do people get the goods and services they want at the lowest possible resource cost?

People Respond to Incentives, Both Good and Bad

Incentives encourage people to work hard and be more productive.

Resources

Include money, time, ability, work ethic, or anything that can be used to generate productive outcomes.

Institutions and Human Creativity Help Explain the Wealth of Nations

Institutions include the legal system, laws and policies, a government free of corruption, and a strong monetary system. Ideas and innovation lead to new products and improve on existing ones, raising the standard of living of all residents.

Markets Are Generally Efficient; When They Aren't, Government Can Sometimes Correct the Failure

Markets bring buyers and sellers together. Competition forces firms to provide products at the lowest possible price. New products are introduced to the market and old products disappear. This dynamism makes markets efficient. In some instances though, markets might fail, such as in dealing with pollution, leading governments to intervene. During extended economic downturns, government can smooth fluctuations in the overall economy.

Specialization Leads to Gains for All Involved

Specializing in tasks in which one is comparatively better at doing than another allows individuals to achieve productivity gains as long as the work is shared in a mutually beneficial manner.

Macroeconomics

The broader issues in the economy such as inflation, unemployment, and national output of goods and services

Microeconomics

The decision making by individuals, businesses, industries, and governments

Incentives

The factors that motivate individuals and firms to make decisions in their best interest

Equity

The fairness of various issues and policies

Scarcity

The result of our unlimited wants clashing with limited resources; everyone (rich and poor) faces this because, at a minimum, our time on earth is limited. Economics focuses on the allocation of scarce resources to satisfy unlimited wants

Economics

The study of how individuals, firms, and society make decisions to allocate limited resources to many competing wants

Opportunity Costs

The value of the next best alternative; what you give up to do something or purchase something

Which is TRUE about specialization and exchange between two individuals?

They generally benefit the poorer individual as well as the richer individual.

Rational Behavior Requires Thinking on the Margin

When making a decision involving benefits and costs, one should continue to consume or produce as long as the marginal (additional) benefit exceeds the marginal (additional) cost.

In the study of economics, the goals of efficiency and equity are often

conflicting with one another.

Supply and demand analysis is used

in both microeconomics and macroeconomics.

People use _____ to determine how many hours to work, and businesses use _____ to determine how much of their product they are willing to supply to the market.

marginal analysis; marginal analysis

When the government chooses to use resources to build tourist centers, the chosen resources are no longer available to build highways. This BEST illustrates the concept of

opportunity cost.

Economics is BEST defined as the study of how

people make rational decisions.

When goods are produced at the lowest possible cost, an economy is said to have achieved

production efficiency.

The opportunity costs of attending college do NOT include

the expenditures for food.

Because of scarcity

we face tradeoffs in nearly every choice we make.

Which of the following is a case when the government should intervene in the economy?

when the market fails to provide goods efficiently