ECON Test study guide

What is positive economics and what is normative economics?

Positive- facts what actually is and can be tested Normative- non fact what should be and cannot be scientifically tested

Why does the production possibility frontier graph be bowed out?

the law of increasing opportunity cost- the more of one thing made the less the economy is capable of producing the other

Why do we need to study economics?

Every major problem in the world has some economic dimension to it There is no overstatement of economics importance to good citizenship so you can vote intelligently on budgets, regulations, and laws in general. Even just a basic understanding if economics makes you a well rounded thinker

What is a market? How are the markets classified?

A market is an institution that brings together buyers and sellers of goods or services, who may be either individuals or businesses. The factor market refers to the market for the buying and selling of factors of production like land, capital, labor, Factor markets: Geographic Location, time, transition, and regulation

The formal study of economics began when Adam Smith (1723-1790) published his famous book The Wealth of Nations in 1776. In the first chapter of The Wealth of Nations, Smith introduces the idea of the division of labor. Define "division of labor" and illustrate with an example.

Division of labor would be when each employee/worker has a specific task within the workplace. In the fast food industry some workers work at the cashier and some others cook the food.

Why are decisions made at the margin?

If we want the most out of our resources options should be chosen only when the benefit exceeds the cost.

Know differences between macro and microeconomics

Macroeconomics- looks at economy as a whole Microeconomics- focuses on individuals within the economy

What is an opportunity cost? Provide an example of opportunity cost?

Opportunity cost- alternative choice that you did not choose increases EX. Jose is building both chairs and benches and chooses to make more benches, the opportunity cost of the chairs raise.

Why does incentives matter in economics?

People will make decisions that positively affect them with the highest benefit possible

How does scarcity effect both the rich and the poor?

Scarcity means that human wants for goods, services and resources exceed what is available. Everyone only has a limited amount of time (24hrs) to earn income, acquire goods and services, leisure time, and sleep.

Why scarcity forces us to choose?

We do not have the resources (money) to buy all that we want so we have to choose what it is we want and use our money on that same with time we cannot finish all it is that we want in a full day so we choose what to do in a day before it ends.

What is efficiency? How is it different from effectiveness?

When it is impossible to improve the situation of one party without imposing a cost of another. Having less workers to make a car (robots used now) Effectiveness is doing the right thing and focusing on the end result "producing a result that is wanted". strategy oriented Efficiency "capable of producing desired results without wasting materials, time, or energy". Time oriented

Each year, researchers at the Heritage Foundation and the Wall Street Journal look at 50 different categories of economic freedom for countries around the world. In each category, they give each nation a score based on extent of economic freedom in that category. What sorts of questions regarding the level of economic freedom might these researchers have asked within this survey which would help rank nations' economic freedom? Please list at least three questions.

Who is in charge when it comes to making decisions? Are businesses free to produce whenever they want or do they have a certain schedule for the day they are allowed to produce? Are employees able to choose what position they want?