ECO 2305 TTU EXAM 1 Review (Questions & Answers) Rated 100% Correct!!

Scarcity - Answer-Resources are limited (unlimited human needs, but limited resources) The Study of Economics - Answer-How to manage limited resource to maximize the outcome/output Goods - Answer-Tangible Items (clothes, food, etc) Services - Answer-Intangible Items (education, health care) 3 Economic Questions - Answer-What to produce? How to produce? For whom to produce Command/Socialism System - Answer-Centralized decisions about production (ex: soviet union/china) Capitalized/ Free market - Answer-Decentralized decision/no role of government (ex: USA) Factors of Production (Returns and income) - Answer-Goods or services that are used to produce another good or service 1) Capital (Interest Rate) - Answer-Physical Human Ex: Buildings, Machines, Ex: Skills, education, jobs tools2) Labor (Wages) - Answer-Effort/ Time 3) Land (Rent) - Answer-Minerals, Rivers, Forrest 4) Entrepreneurship (Profit) - Answer-Human resource, land, capital Self Interest - Answer-HH and firms persuing their self interest, which ends up making society better off Social Interest (composed of two aspects) - Answer-1) Efficiency 2) Equity (Both are trade-offs due to limited resources) Efficiency - Answer-Resources use is efficient if it is imposible to make some one better off without making another worse off (Max. amount of output that can be produced given the limited resource) Equity - Answer-Fair share Two types of Economic Analysis - Answer-1) Positive 2) Normative Positive Economy (what is in the economy) - Answer--Descriptive analysis that can be tested -Right or Wrong - Ex: Income tax increases Gov. revenue? Normative Analysis (how the economy should work) - Answer-- Perspective analysis-Valued or judged Ex: Choice between income tax and sales tax Ceteris Paribus Assumption - Answer--Use when a relationship involves more than two variables - "if all other relevant things remain the same" Production Possibilities Frontier - Answer-A curve or line that shows all combinations of goods and services that the economy can produce given the limited resources Advanced Technology - Answer-The increase in the ability of an economy to produce more goods and services, leads to an increase in the standard of living Absolute Advantage - Answer-The producer has an absolute advantage if he can produce more goods and services given the resources compared to other producers who have the same amount of resources Comparative Advantage - Answer-The producer has a comparitive advantage of producing goods if he can produce it by a lower opportunity cost compared to others who produce the same good Market - Answer-Any arrangement between sellers (producers) and buyers (consumers) to do business CHAPTER 3 DEMAND AND SUPPLY - AnswerTypes of markets - Answer-1) Competitive Market 2)Monopoly Competitive Market - Answer-- Many producers and buyers - Produce the same good or service (homogeneous goods) - Sellers and buyers are price takers *no one has influence on the market price*