ECON B-251 EXAM 1questions and
answers
economicsthe study of satisfying unlimited wants by utilizing limited resources
scarcityunlimited wants and limited resources
the economic problemdeals with the problem of scarcity
Microeconomicsstudies decisions by individual firms and gove...
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
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