Eco - 101 chapter 1 test Bergen community college

has lessons 1,6,7, and 9 in it feel free to use its based on the study guides

What is economics?

The study of decision making under conditions of scarcity and how these decisions affect the allocation of resources and goods.

what is scarcity?

Not having enough resources to satisfy every want.

What is Opportunity cost?

When you chose one thing, your always giving up something else.

the next best alternative you gave up ___________?

Opportunity Cost

What does the word marginal mean?

One additional unit / one more

Benefit from doing or producing one more ?

Marginal Benefit (MB)

Cost of doing or producing one more ?

Marginal Cost (MC)

MB > MC means?

Do more

MB < MC means?

Do less

MB = MC means?

Optimal amount

Economic theories are what ?

When economists notice something, create a hypothesis, test it using data, and if evidence repeatedly supports it become a theory

What does MACRO mean?

Big

What does macroeconomics mean?

The study of the whole economy.

National unemployment, GDP/income, Recessions, Inflation are all exampled of ?

Macroeconomics

What does Micro mean?

Small

What does microeconomics mean?

The study of individual parts of the economy

Price of Iphones, price of oranges, one company, consumers are examples of ?

Microeconomics

What is positive economics?

fact based and testable claim

What is normative economics?

What should or oght to happen very opinion based

IS = ?

Positive

SHOULD = ?

Normative

What is the economizing problem ?

It means unlimited wants plus limited resources means that all choices must be made carefully.

What are you trying to do in economizing the problem?

you are trying to use your limited resources in the best way possible.

Text book definition of The economizing problem?

This problem exists because the economic wants exceed the available economic resources.

What does Budget line mean?

It shows you a combination of the two goods you can afford with your given income and prices.

Is the budget line always changing ?

yes

When your budget line shifts outward/right what happens?

Your income increases and you can buy more stuff

When your budget line shifts inward/left what happens?

Your income decreases and you can buy less stuff

What does the slope of the budget line depend on?

Depends on the ratio of the prices of the two goods

Slope = -Px/Py what does the negative sign mean?

Its because getting more of one good requires giving up some of the other making it a negative relationship

What are the 4 factors of production?

Land, Labor, Capital, Entrepreneurial ability

What does LLCE stand for ?

The for factors of production which are Land, Labor, Capital, and Entrepreneurial ability

What does capital mean in LLCE?

Productive equipment

What is Production Possibilities Curve (PPC) ?

The maximum possible combination of 2 goods an economy can produce when its available resources are fully employed.

What is the main idea of PPC?

If there is more of one thing there always has to be less of another because resources are scarce.

What are the three PPC assumptions ?

Full employment, Fixed resources, Fixed technology

What does full employment mean ?

All available resources are being used

What does fixed resources mean?

The amount of land, labor, capital, and entrepreneurial ability is constant

What does fixed technology mean?

Technology doesn’t suddenly improve while were analyzing the curve

What does a point ON the PPC mean?

Efficient + attainable, resources are being fully utilized

What do point INSIDE the PPC mean?

Attainable BUT inefficient, the economy could produce more but isn’t using all its resources EX: unemployment=recession=unused factories

What does a point OUTSIDE the PPC mean?

Currently unattainable, the economy doesn’t currently have enough resources/technology

Recession and the PPC

Suppose the economy enters a recession, does the PPC shift inward?

NO

Recession and PPC

when the economy enters a recession it moves from?

On the PPC to INSIDE the PPC

What actually shifts the PPC?

The PPC shifts when the economy’s productive capacity changes

When the PPC shifts outward that means?

The economy can produce more, more resources, more labor force, more economic growth, etc.

When the PPC shifts inward that means?

The economy’s productive capacity decreases, destruction of resources, war destroying factories, loss of workers, etc.

What is the main difference between RECESSION and INWARD PPC?

REC= resources aren’t being USED but still there , INW PPC = resources/productive capacity are actually LOST

What is the law of increasing opportunity cost?

As you produce more and more of one good you must give up increasingly larger amounts of the other good

Why does law of increasing opportunity cost exist ?

Because resources aren’t as equally as good at producing everything.