FIN 320F: UNIT 1
Human beings can be characterized by 3 elements, which are... - correct answer
incentives (evaluative), maximization (imperfectly), resourcefulness
What is often the most important incentive for people? - correct answer money
What is dismal science? - correct answer The natural constraint of resources (all
resources, such as water, electricity, roads, food) makes economics
What is confirmation bias? - correct answer seeing out information that confirms
existing opinions and overlook or ignore the information that goes against it
What is economic activity? - correct answer involves the production, distribution,
and consumption of economic assets
What is an economic asset? - correct answer entities functioning as stores of value
and over which ownership rights are enforced by institutional units, individually or collectively, and from
which economic benefits may be derived by their owners by holding them, or using them, over a period
if time
What are property rights? - correct answer the right to control an asset (includes
how the property should be used, how the benefits from this use are distributes, and the ability to
dispose of the asset)
What is socialism? - correct answer a command economy, uses collective or
governmental control of property rights (meaning that the government directs the economy to provide
a fair distribution of society's output)
Governmental control of property rights reduces economic inequality, leading to grater social cohesion
and protection of people's dignity
,What is capitalism? - correct answer a market economy, uses individual control of
property rights (participants act on incentives to maximize welfare)
This maximizes the standard of living for society as a whole
What is economic efficiency? - correct answer getting the most output from scarce
productive resources
What is fairness? - correct answer all humans have access to a decent standard of
living
What is a mixed economy? - correct answer Governments and markets interact
(private property rights are respected and businesses have substantial economic freedom to operate,
but where governments do intervene in economic activity in order to achieve social goals)
What is a nonprofit organization? - correct answer groups that are tax-exempt
under Internal Revenue Code Section 501(c)(3) as "public charities" because they are formed to provide
"public benefit." Community foundations are also part of this group (and so are private foundations,
although tax rules treat them a bit differently than public charities
What is an NGO? - correct answer a more general term;
private sector, voluntary (and usually non-profit and non-sectarian) organization that contributes to, or
participates in, cooperation projects, education, training or other humanitarian, progressive, or
watchdog activities. Some of them are accredited by the UN, and some collect donations for distribution
among disadvantaged or distressed people. Major worldwide NGOs include International Air Transport
Association (IATA), International Chamber Of Commerce (ICC), International Committee Of The Red
Cross, International Organization For Standardization (ISO), Transparency International, World Wide
Web (W3) Consortium, and World Wildlife Fund (WWF)
What is a business? - correct answer organization that produces goods or services
for sale to a customer base; aka firms or enterprises.
*IMPORTANT*
It is an organization that...
1. raises capital from investors
, 2. uses this capital to obtain productive assets
3. uses these productive assets to produce economic assets, aka goods and services, for customers
What are ethics? - correct answer norms of how people treat other people
What is Smith's definition of self-interest? - correct answer market participants
pursue their own interests, but do respect the rights of other market participants; seeking a fair deal
What is Smith's definition of opportunism? - correct answer market participants
seek to benefit themselves by unethical behavior (theft, deception, etc.), which reduces both the
efficiency and fairness of economic activity
How do humans act in a competitive environment (2 choices)? - correct answer self-
interest, opportunism
What are the corrective mechanisms that a market has in place in regards to ethics? - correct answer
information, competition,
What is the invisible hand? - correct answer the unobservable market force that
helps the demand and supply of goods in a free market to reach equilibrium automatically; allocative
force, incentive to produce, incentives + ethics
What is creative destruction? - correct answer new technologies replacing old
What is Laissez Faire? - correct answer A hands off approach to an economy that
has little to no government interference
What are the 3 key roles of the government? - correct answer 1. Enhance the
welfare of its citizens
2. Limit opportunistic behavior
3. Modify or replace markets (take on economic activity)
