intro to econ quiz 1

what is economics

how societies manage the distribution of scarce resources

what is the problem of scarcity

how do we confront unlimited wants and needs with limited resources?

what is the economy?

gross domestic product, GDP total market value of all final goods and services produced in a year

what do we mean when we say the econ is doing good or bad

used as an indicator of the economic health of a country and standard of living: GDP

who was adam smith and what is his importance to economics

he was the first person to write a textbook, published a book called the wealth of nations studied the principles of economics

what is macroeconomics

the study of individual decision makers

what is microeconomics

the study of invidious decision makers

what does the saying "there's no such thing as a free lunch" mean

nothing is really free; everything has a hidden cost or trade off

what do we do to deal with scarcity

make choices regularly

scarcity is?

permanent, unlimited wants and needs but limited resources

shortage is?

temporary, there is more demand than supply in the market

virtually every decision we make involves what kind of analysis?

a cost/benefit analysis

what is opportunity cost

the fact that the pursuit of one activity means foregoing another

what is marginal analysis

people should make a decision based on the incremental gains and losses that result from that decision

what are the 3 economic questions every society must answer

1. who consumes the goods and services produced in society? 2. what goods and services should be produced? 3. how should goods and services be produced?

what are the 2 ends of extremes of the economic spectrum?

1. capitalism (free market economy) 2. communism (command market economy)

all economic systems are in reality what type?

mixed economies

what are the 3 macroeconomic goals of any economic system

stable prices, high employment, economic growth

what is inflation

rise in the general level of prices

what are the 3 negative effects of inflation on an economy

1. it reduces the value of money, 2. it reduces the value of future monetary obligations, 3. it creates uncertainty about the future

how does inflation impact borrowing and loans

because inflation reduces the purchasing power of money, the threat of future inflation can make people reluctant to lend for longer

what is deflation

a decrease in the average level of prices

why is deflation just as damaging to an economy as inflation

changed the value of money and the value of future obligations and created uncertainty about the future

how does deflation impact borrowing and loans

deflation can make people reluctant to borrow