Moudle 1 Economics

Which of the following would be adequate substitutes for the term "marginal"? (Choose three).

Additional Incremental One more

Authority

Description: A person/group in charge directs the flow of goods and services. Examples: Coach, teacher, government, prison warden, dictatorship Advantages: In a perfect system, resources would be allocated in a fair and efficient manner and could effectively conserve scarce resources. More effective on small scales with quick decisions. Disadvantages: Is less effective on large scales. Decisions may require more information than the authority knows - which can lead to inefficient uses of resources through production or distribution. Is also vulnerable to corruption. Many respond negatively to rationing.

Contests

Description: People obtain resources by winning at competitive games of skill, strength, or other variables. Examples: Scholarships, sports championships Advantages: Rewards those who work hard at the desired skills. Encourages growth through competition. Outcome is considered fair if there is no cheating. Favored by those who believe in "survival of the fittest." Disadvantages: Not everyone has a competitive spirit. Encourages cheating/shortcuts. Contests can be biased and designed to benefit a certain group. This strategy can be inefficient on a day to day basis because of the time and resource demands.

Which productive resource category would BEST describe a computer scientist with knowledge of programming?

Human Capital

To what part of an industry does a worker's education MOST contribute?

Human capital

The marginal_______________ of working an extra hour of work is less time with your friends.

cost

Which should ALWAYS be considered when making rational decisions?

marginal benefits and marginal costs

Which of the following terms BEST describes a punishment designed to make someone do something less often?

negative incentive

Which would be an example of an opportunity cost?

not being able to afford a family vacation because the family decides to buy a new car

Goods are

physical objects such as a video game, your dream car, or your favorite snacks. Goods are the things that you can see and touch.

Which of the following is a "guns or butter" decision? (Hint: "Guns or Butter" is a phrase used to describe the opportunity costs that governments face when dealing with scarcity.)

A country must decide whether to use its steel to build new fighter jets for the military or let car manufacturers produce civilian trucks and cars.

Which of the following is a rational decision?

A decision where the marginal benefit is greater than the marginal cost.

Which of the following is an example of scarcity?

A lack of water because of increased demand.

Which of the following is an example of a POSITIVE incentive?

All students who have A's at the end of the semester get to attend a ice cream party

Price, markets, barter, rationing, and redistribution of income are all methods commonly used to ____________________.

Allocate scarce resources

Which method of allocation distributes resources to those who demonstrate they need or want them the MOST through payment?

Allocating by price

Which of the following is an example of a NEGATIVE incentive?

Anyone coming in late will be fired

1st Come, 1st Served

Description: Person who reaches the resource first gets it. Examples: Concert tickets, lunch room line Advantages: Is seen as fair because everyone has an equal chance to obtain the resource if enough effort is made. Disadvantages: Ignores need and benefits those with access to capital, proximity, ability, and information over those without.

Lottery

Description: Resource goes to those who obtain it through a game of chance. Seen as relying on luck. Examples: Lottery, gambling, betting Advantages: These are seen as fair because the outcome is random and avoids bias. Each participant is given an equal chance at the resource. Disadvantages: Ignores need or efficiency when allocating resources. Low entrance costs decrease an individual's chance at obtaining the resource.

Sharing

Description: Resource is divided among multiple parties. Examples: Church tithes, volunteer hours, food Advantages: Can reduce the cost of providing the resource compared to providing individually to all parties. Resource owner can decide how to share the resource. Discourages hoarding. Disadvantages: There is no guarantee that the resource can/will be shared forever. Resource may get damaged or used up more quickly. Some resources can't be divided. All parties may receive too little to be of any worth.

Majority Rule

Description: Resources are allocated the way "most" people want it to be distributed. This strategy occurs when a group of people who have control over a good, service, or factor of production vote to decide how it will be distributed. Examples: Political offices, Senior Superlatives Advantages: Is seen as "fair" because "most" people are happy with the decision. In the best case, the vote will have a significant majority in favor of the decision and the decision will be in society's best interest. Disadvantages: May ignore the needs of minority groups. Is vulnerable to corruption. Voters often lack necessary information. However, if the majority has a small margin, many people may be unhappy with the decision. If the majority is corrupt or makes the decision based on favoritism or fear, the good, service, or factor of production allocation may not be efficient.

Personal Characteristics

Description: The person receiving the resource possesses some specific characteristics, such as merit, age, height, intelligence, hair/eye color, gender. Examples: Senior discounts, kids menu, Social Security, Medicare Advantages: Beneficial for those who have the desired characteristics. Clarifies who the resource is meant to benefit. Disadvantages: Not beneficial to those who lack the characteristic/are excluded.

Price

Description: The person willing to pay the most, or least required amount, will receive the good or service. This allocation strategy allows rationing of a resource based on who can afford the price set by the market. The more desirable and relatively scarce the item, generally, the higher the price. Examples: Auctions, retail item, services. Advantages: Conveys information very quickly, is easy to understand, and is flexible. It causes people to react in predictable ways for supply and consumption. This method is efficient because one can easily tell whether he or she can obtain the good, service, or factor of production based on his or her willingness and ability to pay the price. Disadvantages: Those without money are denied access. Currencies can become unstable (inflation) or be influenced by third parties (governments and central banks).

Force

Description: Those with the most strength or power take or give the scarce resource through threats. Historically, we have seen this as nations have attacked and taken resources from other nations. Examples: Eminent domain, taxes, repossession Advantages: Resources can sometimes be obtained with relatively low cost. Clarifies ownership and, in some countries, may solidify desirable leadership. Disadvantages: Those who are weaker will be unable to retain goods or obtain services which will discourage innovation beyond developing tools of war. Often destroys and therefore wastes resources. Seen as "unfair" to most. Breeds hostility and encourages retaliation. May benefit only a small group.

Profits, job creation, innovation, and improving society are motivating factors for which group of people?

Entrepreneurs

What are you doing when you make a decision at the margin?

Examining the potential costs and benefits of producing one additional unit of a good or service

Maria is considering starting her own bakery. Which of the following examples of physical capital would she most likely need in order to start her business? (Choose the THREE that apply).

Kitchen utensils Food processor Oven

Which productive resource category would BEST describe the work of a seamstress employed by a large clothing manufacturer?

Labor

Human Resources can be categorized in two ways: labor and human capital.

Labor is made of the physical work and effort that someone gets paid for, such as lifting and moving warehouse boxes. Human capital is made up of the skills, knowledge, and experience that a person gets from education and on-the-job training that makes them more efficient or valuable to others. An example of this would be a doctor's ability to successfully perform heart surgery because they have attended medical school and spent time interning at a hospital.

To be considered scarce, an economic resource must be: (select all that apply)

Limited / Desirable

IF a community has problems with people driving through town too fast, what is a potential solution the town could implement to encourage people to slow down?

Negative incentive, such as a writing fines on everyone who speeds

Which term is best defined as: The examination of the additional benefits of an activity compared to the additional costs incurred by that same activity

Marginal Analysis

Which term is best defined as: The additional satisfaction one gains from an additional unit of an activity?

Marginal Benefit

Fundamentals Quiz 1

Notes

Fundamentals Quiz 2

Notes

A local business is having difficulty finding employees. They decide to raise the starting pay by $5 dollars an hour. What economic term BEST describes the economic concept they are applying to attract new employees?

Positive incentive

Allocating scarce resources can be accomplished by which of the following? Choose all that apply.

Price Majority Rule Contests Force Sharing Lottery Authority 1st Come, 1st Served Personal Characteristics

The allocation strategies are:

Price Majority Rule Contests Force Sharing Lottery Authority 1st Come, 1st Served Personal Characteristics

Which describes a method for allocating scarce resources?

The government of a country decides what to produce and for whom it will be produced.

Which is the best description of opportunity cost?

The value of the best alternative forgone when a choice is made

Which of these would a farmer consider physical capital?

Tractor

Scarcity is best defined by which of the following?

a basic condition that exists when unlimited wants exceed available resources

What could something, such as a reward or bonus, that encourages people to behave in a certain way be called?

a positive incentive

Entrepreneurship involves

an individual combining the other three productive resources to create a business that produces goods or services. It is very risky to start a business because the entrepreneur could lose all of the money they have invested in it. Most entrepreneurs create businesses in order to make money, known as a profit. Other reasons someone might start a business include the desire to create jobs, improve society, or innovate.

Why are scarcity and choice basic to the study of economics?

because resources are limited

The marginal ____________ of working an extra hour is extra money!

benefit

What is the greatest incentive that drives entrepreneurs in the American free enterprise, which is based on capitalism and free markets?

desire for profit

To allocate means to _____________.

distribute

Which of the following terms is the BEST synonym for the word "profit"?

earnings

What term describes the force that encourages people and organizations to improve their material well-being?

self-interest

Natural Resources

sometimes referred to as land or "gifts of nature," are things found in nature without human involvement. They include things like water, trees, animals, and rocks.

A decision is made at the margin when each alternative considers _____.

the cost and benefit associated with each additional item or unit

What is marginal cost?

the cost associated with producing or consuming one additional item

Physical Capital describes

the man-made tools, equipment, machinery, and facilities (like factories) that people use to produce other goods and services and get the goods and services to the consumer (people who buy them). Physical capital is also known as capital goods. Examples include hammers, trucks, highways, computers, shovels, or buildings.

In economics, rational decisions occur when _____________.

the marginal benefit of an action equals or exceeds the marginal cost

Opportunity cost is defined as

the next best alternative given up when a choice is made. Essentially, when you look at what you are giving up when you make a choice, you are examining the opportunity cost.

Productive Resources are

things used to make goods and services. They include natural resources, human resources, physical capital, and entrepreneurship.

Services are

things we do for one another. Education, healthcare, entertainment, and construction are all examples of services.

Which of the following BEST describes a motivation for entrepreneurship?

to make a profit

Why do businesses operate with the goal of marginal benefits equalling or exceeding marginal costs?

to maximize profit

A shortage is

when a producer cannot or will not provide a good or service. A shortage may occur for just a short time or it may extend for years, but it is always temporary. On the other hand, scarcity always exists because our wants and needs are unlimited