Chapter 1 Economics Review
Economists assume people choose something when its expected costs are less than its?
Benefits
What does Adam Smith argue in "The Wealth of Nations"?
He argues that competition is key to a healthy economy.
Why was Adam Smith considered one of the most influential people in history?
He was the father of capitalism, and he wrote a book called "The Wealth of Nations." He also created the invisible hand.
What are the limitations of using graphs?
It doesn't count for a variable
What is meant by the metaphor "The Invisible Hand" by Adam Smith?
Its meant to explain how an individual's pursuit of economic self-interest can promote the well being of society as a whole.
What is a Market?
Market is any arrangement that brings buyer and sellers together to do business with each other
What do you need in order for Markets to be efficient where buyers and sellers trade till they are satisfied?
Markets coordinate trade
What is Marginal Benefit?
The marginal benefit is what you gain by adding one more unit.
What is thinking at the margin and give an example?
Thinking at the margin is a decision we make each day that involves choices about a little more or a little less of something rather than making a wholesale change. Example: Should you study another hour or go to bed?
Good Economic models are useful for both ________ and ________ how the _______ operates
explaining; predicting; economy
What is the difference between Microeconomics and Macroeconomics?
- Microeconomics is the study of the economy at the level of individuals, households, and businesses - Macroeconomics is the study of the workings of the economy as a whole
What is the difference between normative and positive economics?
- Positive economics is how the economy is - Normative economics is how the economy should be
What is Scarcity, and how does it force tradeoffs?
- Scarcity is the condition that results because people have limited resources but unlimited wants. - It forces trade offs by the idea that limited resources force people to make choices and face tradeoffs when they choose.
Define and explain the law of unintended consequences?
- The law of unintended consequences illustrates just how complicated and frustrating the work of an economist can be. - To do their job properly, economists need ways to examine economic events, to simplify them, and to figure out how a given economic decision can affect the world.To do this, they need a set of tools. Three of the most effective tools that economists use are the scientific method, graphs, and economic models.
What are the six steps of the scientific method?
1. Ask a Question 2. Do Background Research 3. Construct a Hypothesis 4. Test Your Hypothesis by Doing an Experiment. 5. Analyze Your Data and Draw a Conclusion. 6. Communicate Your Results.