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ECON 1102 - PART 1
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This is the first part of ECON 1102 review. It has all the material for the first midterm, and if you pair it with part 2 and part 3, you can use it to revise for the final exam.
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Principles of MacroeconomicsChapter 1- Economic Issues and Concepts
What is Economics?
- Economics is the study of the use of scarce resources to satisfy unlimited human wants.
- Scarcity indicates that resources are not unlimited and that if resources were not scarce, then choices
would not have to be made.
What are the factions of production/input?
- Land: All natural endowments such as arable land, forests, lakes, crude oil, and minerals.
- Labor: The mental/physical human resources, like entrepreneurial capacity and management skills.
- Capital: All manufactured (produced) aids to production, such as tools, machinery, and buildings.
What are goods and services?
- Goods are tangible, while Services are intangible.
- The act of making goods and services is called production and the act of using them is consumption.
What is Opportunity Cost?
- It is the value of the next best alternative that is forgone when one alternative is chosen.
- It can be shown using a budget line, which is a negatively sloped line that indicates the boundary
between attainable (efficient) and unattainable (inefficient) combinations.
- The opportunity cost for a country is shown using a production possibilities boundary (PPB), a curve
showing which alternative combinations of output can be attained if all available resources are used
efficiently.
What is the law of increasing opportunity costs?
- It states that as the production of one good increases, the opportunity cost of producing an additional
unit rises.
What are the 4 key economic questions?
1. What is produced and how? Resources must be allocated among alternative uses to determine which
goods are produced, and which are not. (MICRO)
2. What is consumed? By whom? What determines how a country’s total output is distributed among its
residents? Why do some get a lot and others only a little, should governments try to alter it? (MICRO)
3. Why are resources sometimes unused? If a society is not using all of its resources, then the society is
operating inside the PPB. Why would this happen? How should governments deal with it? (MACRO)
4. Is productive capacity growing? Growth in productive capacity is shown by an outward shift of the PPB,
making previously unattainable points now attainable. (MACRO)
What is Macroeconomics?
- The study of the determination of economic aggregates such as total output, employment, and growth.
What are the characteristics of a Market Economy?
- Self-Organizing, not organized by the central authority
- Efficient, which means that the resources available are organized to produce goods and services while
using the least amount of resources.
- Focused on Incentives, buy low and sell high. Maximizing consumers and making Marginal decisions to
help them determine if they are better off producing one more/less of a good.
, What is the Circular Flow of Income and Expenditure?
- The goods and services flow from firms through good markets to
households.
- Money payments flow from firms to individuals through factor
markets.
- Output EQUALS Income
- The inner circle is real transactions
- The outer circle is financial transactions
What are the characteristics of production?
- Specialization of Labor is the allocation of different jobs to different people.
- Division of Labor is the breaking up of a production process into a series of specialized tasks.
What are the types of economies?
- Traditional, Command, and Free-Market.
- Every economy is a mixed economy since it combines significant elements of all three systems.
Sample Questions-
1. What is the cost of one additional unit increase in an activity called?
- Marginal Cost.
2. Mothers Against Drunk Drivers (MADD) campaigned to increase the legal penalties of drunk driving.
This successful campaign ________ of drunk driving.
- Increased the Marginal Cost.
3. As the circular flow model points out, a choice that households make is how…
- Many goods and services are purchased.
4. In the circular flow model, consumption goods are bought and sold in the…
- Goods market.
5. Ali decides to attend the one-hour review session for microeconomics instead of working at his job. His
job pays him $10 per hour. Ali's opportunity cost of attending the review session is…
- The $10 he could have earned at his job.
6. The fact of increasing opportunity cost when moving on the PPB means that…
- Increasing the production of one product requires larger and larger sacrifices for the other good.
7. When a nation is producing on its production possibilities boundary, if more resources are used to
produce one good, then the production of other goods…
- MUST decrease!
8. The slope of the budget line represents an opportunity cost because moving along the line,
- a consumer must give up some of one good in order to get more of the other.
9. An increase in a consumer's budget…
- Increases consumption possibilities.
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