Econ Ch. 1- Limits, Alternatives, and Choices

Which nation has the largest economy on Earth?

U.S.

Post hoc fallacy

*"after this, therefore because of this" *because of event A, event B happens (Ex: a football team hires a new coach & the team's record improves. you assume the coach is the reason why they're doing better)

What is the definition of economics?

*ALLOCATION OF SCARCE RESOURCES, and human needs are unlimited *a social science concerned with making optima choices under conditions of SCARCITY *economic wants exceed society's productive capacity

Which countries have a command economy?

*Cuba *North Korea *Venezuela (collapsing now, part of OPEC) *(main ones are Cuba & North Korea)

Labor

*PHYSICAL ACTIONS & MENTAL ACTIVITIES that ppl contribute to the production of goods & services

Entrepreneurial ability

*RISK-TAKERS *willing to take the risk of bringing goods & services (resources) together as they have $ *risk their time, effort, ability, and money bc not all ideas or new products will be profitable

The Economic Perspective

*SCARCITY & choice *OPPORTUNITY COST *purposeful behavior to increase UTLITY *MARGINAL ANALYSIS

Optimal output

*achieving the optimal output requires the expansion of a good's output until its marginal benefit (MB) & marginal cost (MC) are equal *MB=MC *optimal quantity of pizza production is indicated by point "e" at the intersection of the MB & MC curves

A Growing Economy

*an increase in supplies of resources, improvements in resource quality, and/or technological advance move the production possibilities curve outward and to the right *this allows the economy to have larger quantities of both types of good

Consumer's Budget Line

*any combination of goods inside the budget line can be purchased *any point outside (to the right) of budget line exceeds the price you were given

Law of Increasing Opportunity Costs

*as more of a particular good is produced, its marginal opportunity costs increase (Ex: the number of units of industrial robots that must be given up to obtain another unit of pizzas, is the opportunity cost of that unit of pizzas)

Other-things-equal assumption

*assumption that factors other than those being considered DO NOT CHANGE (Ex: relationship btwn price of Pepsi & amount purchased. Assume all of factors that may influence amount of pepsi purchased. Only the price of Pepsi varies

Hurricane Isabel

*at first when trees fell, prices to remove trees were super high *wait some time, and the price went down

Global Perspective

*average income varies among countries *since average incomes vary, so will budget constraints (expenses, taxes) ex: if you're an OT making $90,000 you can have high cable package *if you're a teacher, then you should get basic cable

Trade-Offs

*budget line illustrates the idea of trade-offs arising from limited income *to obtain more DVDs, you have to give up books

Loaded terminology

*catches the audience's interest, but we have to be careful of the exaggerations that this often implies *terminology used in newspapers & broadcast media that is emotionally biased, or loaded (Ex: low wages being called "exploitative")

Aggregate

*collection of specific economic units treated as if they were one unit

Unattainable combinations

*combinations of books & DVDs that EXCEED THE BUDGET on the gift card

Attainable combinations

*combinations of purchasing goods that MEET THE BUDGET (Ex: buying 5 books & 2 DVDs costs $110 which was the maximum amount on gift card, so this works)

Production possibilities curve

*concave shape bc of increasing opportunity costs *the only way to get more of one good is to give up some of the other *economic rationale

Microeconomics

*concerned with DECISION MAKING by individual customers, business firms, and market *observe DETAILS

Unemployment, Growth, & the Future

*economic growth *as you go further outward on the right of the graph, more pizzas can be produced bc there are more resources (workers, cheese, sauce, shrooms)

Positive Economics

*economic statements that are FACTUAL *deals w/what economy is ACTUALLY like *AVOIDS VALUE JUDGEMENT ex:) a hurricane is coming, so the price of generators goes up

International Trade

*enables countries to specialize in the production of goods which they produce more efficiently than other countries *if it's a cheaper price in china to make a shirt then they can get it to the market quicker *ex:) walmart is able to sell everything at a cheaper price bc they have cheaper labor (paying workers less)

Macroeconomics

*examines PERFORMANCE & BEHAVIOR of the economy as a whole *study of ENTIRE ECONOMY or aggregate *focuses attention on: -economic growth -business cycle -interest rates -inflation -behavior of gov't, household, and business sectors

What are Command Economies?

*gov't runs everything *people don't have food

Land

*includes ALL NATURAL RESOURCES *includes: forests, mineral & oil deposits, water resources, wind power, sunlight, arable land

Biases

*it's important put aside your preconceived notions about things for an objective evaluation of the economy *biases cloud thinking & interfere with objective analysis

Law of Demand

*lower price= more ppl buying more of a product

Economic Theory

*made during Great Depression *RESEARCH THIS MORE *"New Deal" by Roosevelt proposed during Great Depression

Capital

*man-made goods MANUFACTURED AIDS & machinery used producing consumer goods & services (Ex: factories: storage, transportation, tools, machinery)

Graphical expression

*many economic models are expressed graphically

Marginal cost

*marginal cost is a larger size diamond, as there is an added expense for a bigger diamond

Marginal Analysis

*marginal means "extra" *COMPARISON BTWN MARGINAL BENEFITS & COSTS, used for decision making

Economizing Problem

*need to make choices bc economic WANTS EXCEED MEANS *limited income & unlimited wants (Ex: you have a gift card for $110. you can pick what you want to buy but it may not go over the price of $110)

Fallacy of Composition

*occurs when we assume that what benefits one person will also benefit others *ex: When there is a traffic jam on the highway, it will benefit me to take the back roads if I am the only one who does that. If everyone gets off of the highway and tries to take the back roads, then the back roads will become very congested and it could actually take longer.

Correlation not causation

*often events are related (correlated), but it doesn't mean that one actually caused the other. *correlation btwn 2 events indicated only that they are associated in some systematic way (Ex: as x increases, y decreases) *you may NOT assume that one causes the other

Ceteris paribus

*other things are equal

Ceterisparibus

*other things are equal

Purposeful behavior

*our system is based on needs & wants *rational ppl act in a way to maximize utility (Ex: when you leave a store, you come out with items you most want, not items you don't want)

Marginal benefit

*perceived lifetime pleasure (utility) from the larger-size stone

Consumer goods

*products that satisfy our wants DIRECTLY (Ex: industrial robots)

Capital goods

*products that satisfy our wants INDIRECTLY by making possible more efficient production of consumer goods

Purposeful Behavior

*rational self-interest *individuals & utility *firms & profit *DESIRED outcome *WAYS TO INCREASE UTLITY- THE PLEASURE, HAPPINESS, OR SATISFACTION

Generalizations

*relating to economic behavior or economy itself (Ex: economists say consumers buy more of a certain product when the price falls)

Scarcity & Choice

*resources are SCARCE -when resources are scarce, prices go up bc demand exceeds supply *CHOICES must be made *SCARCITY RESTRICTS OPTIONS & DEMANDS CHOICES

Budget Line

*schedule or curve that shows various combinations of 2 products a consumer can purchase with a specific money income (Ex: you get a Barnes & Noble gift card as a gift. You can either get 6 DVDs & some books or 4 DVDs and some books. Either way it must meet the price of the gift card

Production Possibilities Model

*shows different combinations of 2 goods that an economy can produce in a fully employed economy *full employment *fixed resources *fixed technology *2-good economy *consumer goods & capital goods

Economic Principle

*statement about economic behavior or the economy that enables a PREDICTION of probable effects of certain actions

Opportunity Cost

*to obtain more of one thing, society forgoes the opportunity of getting the next best thing *a sacrifice is being done

What things fall under the term economics?

*unlimited resources *purposeful behavior *market system

Normative Economics

*what OUGHT to be *involve VALUE JUDGEMENT about what economy SHOULD BE LIKE (Ex: a major crisis comes and if a high price is made for a product to help with the crisis, you can get in trouble)

Present, Choices, Future Possibilities

*when we produce those kinds of goods today, they don't do anything to satisfy needs and wants today, but they will help to better satisfy future wants and needs by enabling the economy to produce a greater amount of present goods in the future *present goods are goods that satisfy needs today and do nothing for us in the future; goods that we buy are present goods

What 3 things happened in 1776?

1.) Adam Smith, father of economic system wrote a book, "A Wealth of Nations" 2.) Democratic system allowed Smith's free market system (July 4, 1776) 3.) Watson invented the steam engine, and this made America a modern industrial nation

What to entrepreneurs do?

1.) employs the other factors of production (supply & demand) 2.) takes initiative 3.) makes strategic business decisions 4.) innovates 5.) takes risks

What are the 5 national goals?

1.) full employment 2.) stable prices

There are 4 categories of economic resources:

1.) land 2.) labor 3.) capital -investment 4.) entrepreneurial ability

What 3 ideas were incorporated into Smith's book, "A Wealth of Nations?"

1.) nature & cause the wealth of nations 2.) why do some nations prosper & some don't? 3.) those nations that allow the ppl to prosper individually are the ones that're successful

Scientific Method Steps

1.) observe 2.) formulate hypothesis 3.) test hypotheses 4.) accept, reject, or modify hypothesis 5.) continue to test hypothesis if necessary

_____________ has out marketed the rest of the world

China

What is the first national goal & How are they measured? Who measures them? What is the standard? How are we doing?

Full employment How measured: unemployment rate Who measures: BLS (Bureau of Labor Statistics) MORE

What is the freest economy in the world?

Hong Kong, China

What kind of economy system does the U.S. have?

Market system / mixed economy -gov't has some role but most is done by market place

Money is __________ a resource

NOT

A production possibilities curve (PPC) illustrates the attainable combination of ________________ a.) 2 goods that can be produced given a specific set of resources b.) many goods that can be produced given an unlimited amount of resources c.) 2 goods that can be produced given an unlimited amount of resources d.) 2 goods that can be produced given a limited amount of income

a.) 2 goods that can be produced given a specific set of resources

Natural resources, labor, human capital, physical capital and entrepreneurship are all scarce economic resources privately or collectively owned by members of society. Where these scarce resources are to produce goods or services, there is: a.) a cost borne by society in utilizing these resources to produce any good or service b.) no "free lunch" c.) no cost borne by society in utilizing these resources to produce goods or services d.) no opportunity cost

a.) a cost borne by society in utilizing these resources to produce any good or service b.) no "free lunch"

A nation's production possibilities curve (PPC) can shift outward _____________. a.) as a result of specialization and trade b.) with a decrease in the unemployment rate c.) with an increase in the quality and quantity of resources d.) through the use of improved production techniques

a.) as a result of specialization and trade c.) with an increase in the quality and quantity of resources d.) through the use of improved production techniques

Which of the following are the four general categories of economic resources? a.) capital b.) labor c.) currency & coins d.) entrepreneurship e.) natural resources

a.) capital b.) labor d.) entrepreneurship e.) natural resources

Select all choices from the following that would be synonymous with land to an economist a.) forests b.) arable land c.) oil & mineral deposits d.) water e.) factories

a.) forests b.) arable land c.) oil & mineral deposits d.) water

Specializing & participating in international trade allows an economy to ___________. a.) increase the quantities of capital & consumer goods available to society b.) get more of a desired good at greater sacrifice of some other good c.) direct domestic resources to output that a nation is highly inefficient at producing d.) get more of a desired good at a less sacrifice of some other good

a.) increase the quantities of capital & consumer goods available to society d.) get more of a desired good at a less sacrifice of some other good

An entrepreneur a.) innovates b.) looks for the latest new products to copy c.) is employed by a large company d.) takes the risk of earning profits or suffering losses from owning an enterprise e.) makes strategic business decisions that set the course of an enterprise

a.) innovates d.) takes the risk of earning profits or suffering losses from owning an enterprise e.) makes strategic business decisions that set the course of an enterprise

A _____________ lists the different combinations of 2 products that can be produced with a specific set of resources, assuming full employment a.) production possibilities table b.) consumption function c.) production function d.) budget table

a.) production possibilities table

The function of an entrepreneur is _______________ a.) to commercialize new products b.) to avoid risks c.) to combine the resources of land and capital to produce a good or service d.) to hire the maximum number of workers possible to boost the economy

a.) to commercialize new products c.) to combine the resources of land and capital to produce a good or service

Which of the following consists of the physical actions and mental activities that people contribute to the production of goods & services? a.) capital b.) labor c.) investment d.) employment

b.) labor

Advances in production technology enable a society to produce a.) the same amount of goods utilizing more resources b.) less goods with more resources c.) more goods with current or less resources d.) less goods with less resources

c.) more goods with current or less resources

The law of increasing __________ states that as production of a good increases, the cost of producing an additional unit of the good rises a.) demand b.) production c.) opportunity costs d.) accounting costs e.) utility

c.) opportunity costs

A budget line illustrates the idea of __________ arising from limited income a.) insatiable wants b.) marginal costs c.) trade-offs

c.) trade-offs

For economists, __________ goods includes all manufactured aids used in producing consumer goods & services

capital

Which of the following includes all natural resources used in the production of goods & services? a.) labor b.) entrepreneurial ability c.) capital d.) land

d.) land

When comparing the additional or incremental costs versus additional or incremental benefits of a decision, one is engaging in: a.) production possibilities analysis b.) supply & demand analysis c.) the scientific method d.) marginal analysis

d.) marginal analysis

Which of the following results from having scarce economic resources? a.) deflation b.) poverty & unequal distribution of wealth c.) the production of unlimited goods & services d.) the production of limited goods & services

d.) the production of limited goods & services

For better or worse, people have virtually ______________ wants a.) limited b.) maximum c.) supply-driven d.) unlimited e.) utilitarian

d.) unlimited

In economics, the term ___________ describes spending that pays for the production and accumulation of capital goods a.) capital b.) money c.) expenses d.) financial e.) investment

e.) investment

The __________ problem refers to the need to make choices because economic wants exceed economic means

economizing

_____________ ability as well as human ability is an economic resource

entrepreneurial

True or false: Economics assumes that human behavior reflects "random self-interest"

false

Capital is an __________ _________, it's ________ the same as money

investment good, NOT

If income decreases, the budget line will shift to the __________, meaning you can get more books & DVDs

left

______________ is the part of economics that examines either the economy as a whole of its aggregates

macroeconomics

______________ is the discipline of economics concerned with individual units such as households, firms, and government

microeconomics

Due to scarce resources, every individual, whether rich or poor, faces an _________ cost when choosing to produce or consume more of one good over another

opportunity

If income increases, the budget line will shift to the __________, meaning you can get more books & DVDs

right

What is utility?

satisfaction

All natural, human, and manufactured goods that go into the production of goods and services are considered society's __________________ economic resources

scarce

Like the physical life sciences, as well asa other social sciences, economics relies on the ____________ method

scientific

Economics relies on _______________ ________________

scientific method

True or False: almost all nations have experienced widespread unemployment & unused production capacity from business downturns at one time or another

true

The pleasure, satisfaction, or happiness obtained from consuming a good or service is known as _______________

utility

Example to explain marginal cost & benefit

you & your fiancee are shopping for an engagement ring. should you buy a 1/2 a carat diamond, a 3/4 carat, or a 1 carat diamond?