ECON QUIZ 1

What is opportunity cost? How do you calculate it?

What is opportunity cost? How do you calculate it?

the value of the next-best alternative when a decision is made; it's what is given up in order to achieve something else

Total revenue-economic profit What one sacrifice/What one gain

What are the factors of production? CELL

● Capital- any human-made goods that are used to make G&S. ● Entrepreneurship-ambitious leader who combines land, labor and capital to create and market new G&S. ● Land- natural resources that are used to make G&S. ● Labor- the effort that people devote to a task for which they are paid.

What is economics?

● Branch of knowledge concerned with the production, distribution, consumption of goods and services, and transfer of wealth. ● The study of how society uses its limited resources. The study of how people seek to satisfy their needs and wants by making choices. ● What, how and for whom society produces its goods and services

What is the most pressing issue for societies?

How to allocate rare resources

What is a trade off?

• A compromise between two desirable but incompatible outcomes • A trade-off is a situational decision that involves diminishing or losing one quality, quantity, or property of a set or design in return for gains in other aspects. • In simple terms, what we must give up to achieve something else. NO CALCULATION AVAILABLE UNLIKE OPPORTUNITY COST

What is cost/benefit analysis?

Cost-Benefit analysis (CBA) is a systemic process for calculating and comparing benefits and costs of an intervention in terms of monetary unit ().

What is the difference between a want and a need?

-want is the human desire to have and use a certain good.

• need is a necessity that one must have in order sustain life.

human capital

the knowledge and skills a worker gains through education and experience

What event caused the United States to get more involved in the economy?

The Great Depression

Why do people study economics?

Helps people to understand the world around them It impacts your everyday life and helps people plan for the future Helps governments to understand other countries' policies People can develop transferrable skills to help them in the workplace Explains how businesses and governments achieve their goals to maximize profits and allocate resources Explains past, future, and present models- forecaster of what decisions should be made

Physical capital

the human-made objects used to create other goods and services

financial capital

money used to buy the tools and equipment used in production

Malthus theory

18th century British Philosopher and Economist noted for the Malthusian growth model, an exponential formula used to project population growth. The theory states that food production will not be able to keep up with growth in the human population, resulting in disease, famine, war, and calamity. Betterment of society impossible without limits on production

Adam Smith: Scottish Philosopher and Economist

Considered the father of Economics Wealth is created through productive labor, and that self-interest motivates people to put their resources to the best use. He argued that profits flowed from capital investments, and that capital gets directed to where the most profit can be made. Smith's 3 natural laws of economics: Law of self-interest - people work for their own good. Law of competition - competition forces people to make a better product for lower price. Law of supply and demand - enough goods would be produced at the lowest price to meet the demand in a market economy.

David Ricardo: theory of comparative advantage

Idea that two countries could both benefit from trade

Monetarism

Economist Milton Friedman believes that inflation occurs when there is too much money chasing too few goods When inflation becomes rampant the government will try to curb it by taking money out of circulation with FED raising interest rates This leads to a recession with slowed economic growth and an increase in unemployment. Government tries to resolve problem== creating welfare programs and debt Monetarists suggest that the proper thing for government to do is to have a steady, predictable increase in the money supply at a rate equal to economic productivity. Beyond that the government should leave the economy alone and let the free market operate. This theory answers the traditional concern that libertarians, conservatives, and Republicans have with inflation.

Keynesianism

John Maynard Keynes, an English economist, believed that the free market will not automatically operate at full employment, low inflation level. The health of the economy depends upon what fraction of people's incomes they save or spend. If they save too much, there will be too little demand, production will decline, and unemployment will rise. If they spend too much, demand will rise too fast, prices will go up, and shortages will develop The key of government is to create the right level of demand. government spending and taxing to help stabilize the economy. This can be done by increasing taxes or borrowing. When demand is too little, the government should pump more money into the economy by spending more and pumping more money into public works programs When demand is too great, the government should take money out of the economy by increasing taxes and cutting federal expenditures Keynesians tend to favor an activist government and are not concerned with deficit spending. The government at times needs to go into debt to stimulate the economy. This theory answers the traditional concerns that Liberals and Democrats have about unemployment.

Scarce:

when there is not enough of it available to satisfy the various ways a society wants to use it. Leads to shortages and higher prices

Macroeconomics- Large choices (countries) "large picture"

● The economy as a whole ● What factors make a countries wealth go up and people to lose their jobs- GDP, Inflation, unemployment

Microeconomics- small choices (personal)- "small picture"

● Studies individual economic behavior and the decisions people make

Positive economics -

the branch of economic analysis that describes the way the economy actually works.

Normative economics -

makes predictions about the way the economy should work.

types of systems of economy

• Market Economy: Production and consumption are the product of individuals and business -Singapore, Hong Kong, New Zealand, Switzerland • Command Economy: industry is owned and operated by the government- decides what to produce and how much of the product-North Korea, Cuba, Libya, Iran, Russia • Mixed Economy: Combination of two government systems where have more government control and less individual choice on areas of public defense and infrastructure—France, United States, Japan, England, China Capitalism: Economic system where private owners control property in accordance with their interests, and supply and demand set prices in markets in a way that can serve the best interests of society- main purpose is to make profit Socialism: Economic system where a social organization or government advocates for the means of production, distribution, and exchange should be to better the community as a whole. Communism: Theory by Karl Marx where class conflict leads to society where all public property is publicly owned and people are paid according to their abilities and needs. Everyone shares in the profits and the government controls all means of production.

Economics starts with one very important assumption:

Individuals act to make themselves as well off as possible!

Utility:

a measure of satisfaction that is sought to be maximized in any situation involving a CHOICE.

Economists define __________ as "limited quantities to meet unlimited wants".

scarcity

All decisions involve _____________ because we must give up some alternatives when we choose a certain course of action.

trade-off

The term __________ refers to all natural resources that are used to produce goods and services.

land

A(n) _______________ is the most important sacrifice that results from making a decision.

opportunity cost

A person who starts a new business or develops an original idea is know as a(n) ___________________.

Entrepreneur

"The sky is blue" is a __________statement.

positive

In a ______ ________ prices adjust to reconcile scarcity and desires

market economy

How Scarce Resources are Allocated

Price: the good or service goes to the person willing and able to pay the most for it or the person willing to pay a stated amount at a specific time—determined by supply and demand of the market First-come-first-served: the good or service goes to the first person to claim it, like concert tickets (which also require money!) Majority rule: the good or service goes to the person who gets a majority (or sometimes a plurality) of a vote, like a Senate election Sharing: the good or service is divided and given to multiple people who mutually agree to only use part of it, like a meal at a soup kitchen Force: the good or service is taken by someone through legal or non-legal means (there is no voluntary exchange), like theft Competition: the good or service is awarded to the person who won a game, event, or contest Arbitrary characteristic: the good or service is given to someone just because they meet certain requirements - age, grade, geographic location, race, gender, shoe size...The characteristics are "arbitrary" because they can change. Command: the good or service is given out by a government entity Random/Lottery: the good or service is given out by chance with everyone having an equal opportunity to get it, like an actual lottery Enforce Contracts in the business world and break up monopolies to force