Microeconomics Ch 1+2 quiz terms

5 fundamental questions

1. What goods and services will be produced? 2. How will the goods and services be produced? 3. Who will get the goods and services? 4. How will the system accommodate change? 5. How will the system promote progress?

Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or at other potential jobs. One potential job, at a café, will pay her $12 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

4 hours Pham will choose to work at the bookstore as long as the wage rate at the bookstore exceeds her other opportunities. However, if another job offers a higher wage rate she will choose employment there. She will work until her total time allotment (for work) is exhausted. For example, assume Pham only has 15 hours per week that she can work and the wage rate at the bookstore is $9 per hour. She can also spend her time working at a café that will pay her $12 per hour for up to 6 hours per week, at a garage that will pay her $10 an hour for up to 5 hours per week, and at a daycare center that will pay her $8.50 per hour for as many hours as she can work. She will choose to work at the café for the full 6 hours because the wage rate at the café is $12 per hour, which is greater than the wage rate at the bookstore of $9. This leaves her with 9 hours of work time remaining. Next, she will choose to work at the garage for the full 5 hours because the wage rate here is $10, which again is greater than the bookstore wage rate $9. After this decision she only has 4 hours of work time remaining. She will choose to work these last 4 hours at the bookstore because the bookstore wage rate of $9 exceeds the daycare center wage rate of $8.50.

economics

A social science concerned with making optimal choices under conditions of scarcity economic wants exceed society's productive capacity - all about making choices

law of increasing opportunity cost

As more of a particular good is produced, its marginal opportunity costs increase

If you are going to trade coconuts for fish, would you rather trade with Friday or Kwame?

Because Kwame is willing to give up more fish per coconut, I can consume more of both (assuming I make a trade). This implies that you would prefer to trade with Kwame.

entrepreneurs

Employing other factors of production take initiative

barter

Exchange goods without involving money. requires a double coincidence of wants

True or False: Money must be issued by a government for people to accept it.

False Many things have been used as money without having been approved by or produced by governments. Examples included seashells, cattle, and cigarettes. Money is socially defined and whatever a society accepts as a medium of exchange is money.

economic principles

Generalizations, Other-things-equal assumption, graphical expression

Potatoes cost Janice $1 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30, how many pounds of potatoes will she purchase? What if she only had $2 to spend?

Janice will purchase potatoes until the value of potatoes is less than the cost of potatoes or until her income has been exhausted. For example, assume Janice has $5.00 to spend on potatoes or other items and the cost of a pound of potatoes is $1. Now assume the first pound of potatoes is worth $1.50 to Janice. She will purchase this pound of potatoes since the value of the pound of potatoes ($1.50) is greater than the cost ($1). If the second pound is worth $1.14 and the third pound is worth a $1.05 then Janice will purchase these as well since the value exceeds the cost of $1. If all remaining pounds are worth $0.30 then Janice will not purchase these because the value is less than the cost. So, Janice will purchase 3 pounds of potatoes at total cost of $3.00. Now assume Janice only has $2.00 to spend on potatoes. She will purchase the first pound because it is worth $1.50 to her and it only costs a $1. She will purchase the second pound because it is worth $1.14. She has now spent her entire income on potatoes. She would like to purchase the third pound because the value of this pound of potatoes is $1.05, but she does not have the income to make this purchase. So, Janice will purchase 2 pounds of potatoes at a total cost of $2.00.

The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens.

Laissez faire system

optimal output

MB=MC

Does the budget line tell you which of the available combinations of candy bars and bags of peanuts to buy?

No, only tells what is possible

scarcity and choice

Resources are scarce Choices must be made Opportunity cost There's no free lunch

the economic perspective

Scarcity and choice Opportunity cost Purposeful behavior to increase utility Marginal analysis ex: Movies - price = $12, cost = value of opportunity given up

international trade

Specialization Increased production possibilities

Which budget line features a larger set of attainable combinations of coconuts and fish?

The budget line from trading with Kwame features a larger set of attainable combinations of coconuts and fish. Because Kwame is willing to give up more fish per coconut, I can consume more of both (assuming I make a trade). This implies that you would prefer to trade with Kwame.

Plot the data in your table as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one more bag of peanuts? Do these opportunity costs rise, fall, or remain constant as additional units are purchased?

The slope for the budget line above, with candy bars on the horizontal axis, is -0.5 (= -Pcb/Pbp). Note that the figure could also be drawn with bags of peanuts on the horizontal axis. The slope of that budget line would be -2.

Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he is willing to trade 3 fish for every 1 coconut. On a single figure, draw budget lines for trading with Friday and for trading with Kwame. (Put coconuts on the vertical axis.) What is the slope of the budget line from trading with Friday?

The slope of the budget line from trading with Friday equals -(1/2). This implies that for every coconut I give up, Friday must give up two fish. Or, for every fish that Friday gives up, I must give up (1/2) a coconut.

What is the slope of the budget line from trading with Kwame?

The slope of the budget line from trading with Kwame equals -(1/3). This implies that for every coconut I give up, Kwame must give up three fish. Or, for every fish that Friday gives up, I must give up (1/3) a coconut.

technology and capital goods

advanced tech and goods are encouraged specialization - division of labor - geographic specialization

negative budget line slope

always infers a trade-off (must give up one to get another) bc of limited income, you are forced to choose budget line doesnt tell you what to choose, just tells options and tradeoffs

for the whole market, an increase in the demand for X results in

an increase in the price of X

pitfalls to sound economic reasoning

biases, loaded terminology, fallacy of composition, post hoc fallacy, correlation not causation

production possibilities curve

concave shape economic rationale -- resources aren't completely adaptable

differences exist by

degree of decentralized use of markets and prices in decision maing degree of centralized gov't control

price

dollars or currency

what shifts the ppc

economic growth - shifts out unemployment - shifts in

post hoc fallacy

false assumption that because one event occurred before another event, it must have caused that event

laissez-faire capitalism

ideal economy "keep gov't from interfering with the economy" power of gov't just needed to -protect private property from theft -provide a legal environment for contract enforcement people interact in markets to buy and sell

Suppose that you had won $30 on your ticket, not $15. Show the $30 budget line in your diagram. Has the number of available combinations increased or decreased?

increased would be preferable because it would allow greater consumption of both goods

4 categories of economic resources

land, labor, capital (investment), entrepreneurial ability

the economizing problem

limited income and unlimited wants the budget line attainable and unattainable wants

Goal of economics

make optimal choices with the best available information because of scarcity

uses of money

makes trade easier medium of exchange without, would have to barter

marginal analysis

marginal benefit marginl cost marginal means extra comparison between marginal benefit and marginal cost

micro vs macro

micro = individual choices macro = economic sphere

the market system

mix of decentralized decision making with some gov't control found in much of the world private mkts are dominant force private ownership of resources self-interested behavior

production possibilities model

model shows different combos of two goods that one can produce assume: full employment, fixed resources, and fixed tech

free

not in an economic sense, as opportunities are always given up

factors that change the budget line

price of goods income

characteristics of a market system

private property, freedom of enterprise, freedom of choice, self interest, competition, market and prices

slope of the budget line

rate of change ratio of price of goods measured on horizontal axis divided by price of goods as measured on the vertical axis makes us measure trade-off

purposeful behavior

rational self interest individuals and utility firms and profit desired outcome

utility (utils)

satisfaction we are driven to be the most satisfied, otherwise we are irrational

economic systems

set of institutionalized arrangements coordinating mechanism

command system

socialism / communism gov't ownership of resources decisions made by a central planning board north korea, cuba, myanmar

positive economics

statement that is factual

normative economics

statements that involve value judgements

specialization

the concentration of the productive efforts of individuals and firms on a specific product or service

fallacy of composition

the incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or the whole

margin(al)

the next one, the additional, what happens next - marginal analysis

economic cost

the value of the opportunity given up

who will get goods and services?

those who are willing and able to pay

why do we have choices

we must have choices because we can't have two alternatives at the same time