ECON B-251 EXAM 1questions and
answers
economics✔✔the study of satisfying unlimited wants by utilizing limited resources
scarcity✔✔unlimited wants and limited resources
the economic problem✔✔deals with the problem of scarcity
Microeconomics✔✔studies decisions by individual firms and governments
Macroeconomics✔✔studies decisions made or actions taken by the entire economy
ex. inflation, unemployment, GDP
rationality assumption✔✔assumes that people do not intentionally make decisions
that would leave them worse off.
bounded rationality✔✔assumes peoples rationality is constrained because they do
not have full information
prospect theory✔✔demonstrates how people react differently to potential loss and
potential gain.
maximizer✔✔try to make optimal decisions based on the rationality assumption
satisficer✔✔try to find a "good enough" solution based on bounded rationality
self-interest✔✔pursuit of one's own goals. Maximize happiness.
social-interest✔✔choices that are best for society as a whole
tradeoff✔✔when we choose one thing, we give up something else
non-strategic✔✔decisions based on an individual's or firm's own costs and benefits
strategic✔✔decisions based on others' decisions as well as one's cost and benefits
opportunity cost✔✔The highest-valued, next-best alternative that must be sacrificed
to obtain something or to satisfy a want
marginal analysis✔✔evaluates the consequences of making incremental changes in
the use of their resources
, positive economics✔✔purely descriptive statements or scientific predictions- a
statement of what is.
normative economics✔✔analysis involving value judgements-- what ought to be
models✔✔Simplified representations of the real world used as the basis for
predictions or explanations
three scarcity questions✔✔1. what to produce?
2. how to produce?
3. for whom?
Four factors of production✔✔land, labor, capital, entrepreneurship
Two types of capital✔✔human (knowledge) and physical (machines)
marginal cost✔✔the opportunity cost of producing one more unit of a good
marginal benefit✔✔the additional benefit to a consumer from consuming one more
unit of a good or service
decreasing marginal benefit✔✔the maximum amount of money a consumer is willing
to pay for an additional good or service is decreasing.
production efficiency✔✔we cannot produce additional amounts of a good without
decreasing the production amount of another product
allocative efficiency✔✔every good or service is produced up to the point where the
last unit provides a marginal benefit to consumers equal to the marginal cost of
producing
inefficiency✔✔any point inside the PPC
comparative advantage✔✔the ability to produce a good at a lower opportunity cost
than another producer
absolute advantage✔✔producing a greater quantity of a good, or service than
competitors, using the same amount of resources.
Specialization✔✔put all production into one good or service
economic growth✔✔what does a shifting out of the PPC represent?
consumer goods✔✔goods produced for personal satisfaction
capital goods✔✔goods used to produce other goods
answers
economics✔✔the study of satisfying unlimited wants by utilizing limited resources
scarcity✔✔unlimited wants and limited resources
the economic problem✔✔deals with the problem of scarcity
Microeconomics✔✔studies decisions by individual firms and governments
Macroeconomics✔✔studies decisions made or actions taken by the entire economy
ex. inflation, unemployment, GDP
rationality assumption✔✔assumes that people do not intentionally make decisions
that would leave them worse off.
bounded rationality✔✔assumes peoples rationality is constrained because they do
not have full information
prospect theory✔✔demonstrates how people react differently to potential loss and
potential gain.
maximizer✔✔try to make optimal decisions based on the rationality assumption
satisficer✔✔try to find a "good enough" solution based on bounded rationality
self-interest✔✔pursuit of one's own goals. Maximize happiness.
social-interest✔✔choices that are best for society as a whole
tradeoff✔✔when we choose one thing, we give up something else
non-strategic✔✔decisions based on an individual's or firm's own costs and benefits
strategic✔✔decisions based on others' decisions as well as one's cost and benefits
opportunity cost✔✔The highest-valued, next-best alternative that must be sacrificed
to obtain something or to satisfy a want
marginal analysis✔✔evaluates the consequences of making incremental changes in
the use of their resources
, positive economics✔✔purely descriptive statements or scientific predictions- a
statement of what is.
normative economics✔✔analysis involving value judgements-- what ought to be
models✔✔Simplified representations of the real world used as the basis for
predictions or explanations
three scarcity questions✔✔1. what to produce?
2. how to produce?
3. for whom?
Four factors of production✔✔land, labor, capital, entrepreneurship
Two types of capital✔✔human (knowledge) and physical (machines)
marginal cost✔✔the opportunity cost of producing one more unit of a good
marginal benefit✔✔the additional benefit to a consumer from consuming one more
unit of a good or service
decreasing marginal benefit✔✔the maximum amount of money a consumer is willing
to pay for an additional good or service is decreasing.
production efficiency✔✔we cannot produce additional amounts of a good without
decreasing the production amount of another product
allocative efficiency✔✔every good or service is produced up to the point where the
last unit provides a marginal benefit to consumers equal to the marginal cost of
producing
inefficiency✔✔any point inside the PPC
comparative advantage✔✔the ability to produce a good at a lower opportunity cost
than another producer
absolute advantage✔✔producing a greater quantity of a good, or service than
competitors, using the same amount of resources.
Specialization✔✔put all production into one good or service
economic growth✔✔what does a shifting out of the PPC represent?
consumer goods✔✔goods produced for personal satisfaction
capital goods✔✔goods used to produce other goods
