ECON-2305 | TEST #1

🚨 DISCLAIMER: a good portion of the questions and multiple-choice answers provided in this flashcard set were generated by AI. All of the answers generated by AI are INCORRECT. All correct answers come straight from the book, lecture notes, and in-class practice questions. While this guide was made by me (a student), I am not an expert. I am learning this material along with all of you. I advise every person using this set to support it with their own notes, flashcards, and study guide. I do not have the test answers, I only have the study material and my own understanding of it. This flashcard set has been made using lecture notes, chapter definitions, and practice questions in class. It Encompasses chapters 1 - 3, and some of chapter 4 of the textbook. This is meant to use as a studying aid for the upcoming test that will be due on 9/15/2025. Have a great day, and good luck!

Economics

The social study of how people allocate their limited resources to satisfy their unlimited wants

As a social science, the purpose of economics is to…

Explain choices, teach thinking, provide a frame of reference

F. A. Hayek said: “Individual decision making…”

Drives the economy

Resources

Things used to produce goods and services to satisfy people’s wants

Wants

What people would buy if their incomes were unlimited

What are some examples of human resources?

Labor, entrepreneurial ability, human capital or “tools of the mind”

What are some examples of property resources?

Land, economic or physical capital, natural resources, machinery and infrastructure used in production

What is the “economizing problem”?

The dilemma of having limited resources to satisfy unlimited wants, leading to the need for making choices

What are the 3 important “institutions” that contribute to economic prosperity?

The rule of law, private property, and political stability

Rule of Law

Foundational principle where everyone (including the government) is subject to and accountable under fair, transparent, and consistently enforced laws

Private property

The legal ownership and control of resources, assets, and the means of production by individuals or private entities rather than a government or the public. It creates incentives

Political stability

The predictable, consistent functioning of a country’s government and institutions, which fosters confidence in investors and businesses, thereby promoting economic growth

Capitalism is characterized by…

Limited government, private property that allows for incentives, and free enterprise

What questions are answered by our economic system?

What and how much will be produced, how will items be produced, and for whom will they be produced

Self-interest

Individuals act as if they systematically pursue self-motivated interests and respond predictably to perceived opportunities to attain those interests

Who articulated the insight of self-interest in economics?

Adam Smith, 1776

Microeconomics

The study of decision-making undertaken by individuals or households, and by firms

Macroeconomics

The study of the behavior of the economy as a whole, including such economywide phenomena as changes in unemployment, the general price level, and national income

Aggregates

Total amounts or quantities

Microeconomics is concerned with…

The effects of changes

If the government establishes new health care regulations, what would microeconomics focus on?

How individual firms and consumers will reach to those regulations

Macroeconomics is concerned with…

The effects caused by changes in the bigger picture, such as the amount of economywide unemployment

Why are modern economists increasingly using microeconomic analysis as the basis of macroeconomic analysis?

The aggregates of macroeconomic analysis are the result of choices made by individuals and firms on the microeconomic level

Economic System

A society’s framework for determining the way scarce resources are used to satisfy human desires

The Centralized Command and Control economic system is operated by…

A centralized authority that assumes responsibility for addressing fundamental economic issues and answering the three fundamental questions

What are some examples of centralized authority figures in a Command and Control economic system?

Queens, kings, dictators, central government

The Price economic system is operated by…

Choices to answer the three fundamental questions made by private parties to determine on their own initiative due to individuals and families owning all of the scarce resources used in production

What do prices signal to everyone within a price system?

Which resources are relatively scarce and which are relatively abundant, informing individuals about the answers to the three fundamental questions

Mixed economic systems

Systems that combine aspects of both centralized command and control and a decentralized price system

Opportunity cost

The cost of the highest valued, next best alternative that is sacrificed in order to satisfy a want or need

Gross Domestic Product

The total market value of all final goods and services produced during a year by factors of production located within a nation’s borders

Scarcity

A situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants

Marginal costs

The change in total costs due to a one-unit change in production rate

Budget deficit

An excess of government spending over government revenues during a given period of time

Utility

The want-satisfying power of a good or service

Consumer surplus

The difference between the total amount that consumers would have been willing to pay for an item and the total amount that they actually pay

Federal Reserve

The central bank of the United States

Who is the Federal Reserve’s current Chair?

Jerome Powell

What did we call the economy during the pre-covid era?

Goldilocks Economy

What historic events preceded the Great Depression of the 1920’s?

Recovery from WWI, the Spanish flu, increased stock market speculation, increased money supply, and automobiles

What happened during the Great Depression?

Stock market drop, run on banks, increased demand for gold, tighter monetary policy (which led to higher interest rates), and government intervention

POST-WWII: what did the U.S. benefit from?

Re-building

POST-WWII: what is the generation that was born in the 1950’s called?

Baby Boomers

Exiting WWII and entering the Baby Boom generation… what happened to the percentage of home ownership between 1900 and 2008?

Increased dramatically

Fiscal Policy

The discretionary changing of government expenditures or taxes to achieve national economic goals, such as high employment with price stability

When was the last time there was a budget surplus?

2001

Broken window fallacy

Destruction does not create economic prosperity, it only shifts resource allocation

Market

All of the arrangements that individuals have for exchanging with one another

What is the driving force of capitalism?

Self-interest

“Invisible Hand”

A concept that represents how individuals pursuing their own self-interest in a free market unintentionally promote the public good, leading to an efficient allocation of resources without central planning

What is the regulating force of capitalism?

Competition

What is the stabilizing force of capitalism?

A system of markets and prices

Free enterprise

The freedom of businesses and individuals to organize and operate for profit in a competitive system without interference from government beyond some basic regulations necessary to protect the public

What did Palmer have to say in “The Morality of Capitalism”?

The essence of capitalism is not just a matter of exchanges to an end; it is also about creating value by mobilizing both ingenuity and “human energy”

What did Adam Smith have to say in “Wealth of Nations”?

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest

There is a difference between economic and financial capital. What is economic capital?

The resources and assets necessary for production and operation

There is a difference between economic and financial capital. What is financial capital?

The funds available for investments and financial transactions

Human capital

Skills of the mind

Working capital

Day-to-day cash needed to run a business

Social capital

Network, relationships, etc.

Why isn’t there such thing as a “free lunch”?

Somebody always has to pay for it

National debt

The total amount of money that a country’s government has borrowed and not yet repaid, and a crucial indicator of a nation’s financial health

Is the U.S. federal budget deficit / debt problem as bad as some folks say?

Yes

What was the largest annual deficit prior to 2000?

$290 Billion

What was the total deficit in the 2024 fiscal year?

$1.83 Trillion

What are the 3 assumptions of the Production Possibilities Curve?

Fixed technology, fixed resources, and efficiency

Macroeconomics’ goal is to achieve / provide…

Full employment, price stability, freedom of choice, heightened standard of living, and a safety net for the sick, elderly, etc.

Factors of production

The resources used to create goods and services, which include land, labor, physical and human capital, and entrepreneurship

Variable

A value which changes with respect to another value

In supply and demand, what is a variable?

The relationship between price and quantity

Parameter

A value which unties or ties together multiple variables

In supply and demand, what is a parameter?

The non-price determinants, or items other than price which impact demand for a good and / or willingness to supply a good

Ceteris paribus

A Latin phrase meaning "all other things being equal"

What is Ceteris paribus used for in economics?

To denote that all other parameters remain constant and are unchanged during a period of time

What do we mean by “law” when speaking of supply and demand?

Widely held propositions

What are the 3 laws of supply and demand?

The law of demand, law of supply, and law of product equilibrium

Law of demand

The observation that there is an inverse relationship between the price of any good or service and the quantity demanded

Law of supply

The observation that the higher the price of a good, the more of that good sellers will make available over a specific time period, other things being equal

Law of product equilibrium

The situation in which quantity supplied equals quantity demanded at a particular price

Under ceteris paribus, the law of demand shows that…

If the price of a good increases, the quantity demanded will decrease, and vice versa

Under ceteris paribus, the law of supply shows that…

If the price of a good increases, the quantity supplied will also increase, and vice versa

On the demand side, in a condition of ceteris paribus, what happens where there is a change in price?

There is a change in quantity demanded

On the supply side, in a condition of ceteris paribus, what happens where there is a change in price?

There is a change in quantity supplied

“Market at rest” means…

Qty supplied = Qty demanded

What are the non-price determinants of demand?

Changes in taste or preferences, income levels, prices of related goods, expectations, and number of buyers

How does a higher number of buyers change the demand?

It increases demand

Are “inferior goods” universal?

No, they vary by income level and consumer preferences

What are the non-price determinants of supply?

Production costs, technology, number of sellers, taxes, government regulations and expectations

If you want less of something…

Tax it

The law of demand states that Price and Quantity are…

Indirectly related under ceteris paribus

Which part of the following is not one of the categories of resources?

Government

The point where the PPC intersects the vertical axis is

Attainable and efficient

If John’s demand for hot dogs falls as his income rises, then hot dogs are a(an)…

Inferior good

A decrease in the number of buyers in an area will result in…

A leftward shift in the demand curve

As the price of good A rises, the demand for good B rises. Therefore, goods A and B are…

Substitutes

Which of the following will not shift the supply curve?

A change in the good’s price

A rightward shift in the demand curve for tennis balls could be caused by…

A fall in the price of tennis rackets

Tickets to the Super Bowl game are generally sold out well in advance of game day. This suggests that…

The original ticket price is set below equilibrium

If the demand for computer software rises as incomes rise, the computer software is a (an)

Normal good

Production Possibilities Curve (PPC)

A curve representing all possible combinations of maximum outputs that could be produced, assuming a fixed amount of productive resources over a given quantity