Economics Exam Revision Notes

A collection of flashcards based on key concepts from the Economics lecture notes to aid in exam preparation.

What is opportunity cost?

Opportunity cost is what you must give up in order to get something.

What is marginal analysis?

Marginal analysis is the study of marginal decisions, such as whether to study one more hour for an exam by comparing the benefits against the costs.

What is an economic incentive?

An economic incentive is anything that offers rewards to people who change their behavior.

What is an example of an economic disincentive?

A disincentive is a financial penalty, cost, or policy designed to discourage specific consumption patterns, such as a tax on single-use plastic bags.

What is the difference between a positive statement and a normative statement?

A positive statement describes what is (fact, testable), while a normative statement describes what should be (value judgment/opinion).

What is efficiency in economics?

Efficiency occurs when an economy has no missed opportunities and no wasted resources.

What is equity in economics?

Equity refers to a condition in which everyone gets their fair share; it is a normative concept.

What is the difference between a theory and a model?

A theory is a broad explanation of how something works, while a model is a simplified representation used to apply a theory.

What does ceteris paribus mean?

Ceteris paribus means 'other things equal' and is used by economists to isolate one cause.

What is an endogenous variable?

An endogenous variable is determined inside an economic model.

What are the four categories of factors of production?

1. Land (natural resources): water, oil, farmland 2. Labor (human work): workers, engineers 3. Physical Capital (tools/machines): factories, computers 4. Entrepreneurial ability: business owners taking risks.

What is the production possibilities frontier (PPF)?

The PPF is a graph that shows the maximum combination of two goods an economy can produce using all resources efficiently.

What does constant opportunity cost in production mean?

Constant opportunity cost means each extra unit of Good A always costs the same amount of Good B, resulting in a straight-line PPF.

What does increasing opportunity costs in production indicate?

Increasing opportunity costs indicate that as more of Good A is produced, more and more of Good B must be given up, resulting in a concave PPF.

What causes an economy to find itself at an interior point on the PPF?

Reasons include unemployment, underused resources, or inefficient production; such points are not efficient.

What is the difference between capital goods and consumer goods?

Capital goods are used to make other goods (e.g., machines), while consumer goods are directly consumed (e.g., food).

What can cause the PPF to shift outward?

Factors such as the improvement of the four factors of production and advances in technology can cause the PPF to shift outward.

What would cause the production possibilities frontier to shift inward?

Inward shifts can occur due to factors such as war, natural disasters, loss of workforce, and a decline in technology or productivity.

How does a choice between capital goods and consumer goods impact economic growth?

Choosing more capital goods leads to increased future production and economic growth.

What sectors are removed in the circular flow model?

The government, financial markets, and international markets are excluded before constructing the circular flow model.

What institution conducted the study of economists regarding government handling of carbon emissions?

The study is conducted by the IGM Forum at the University of Chicago Booth School of Business.

What percentage of economists supported a carbon tax for managing carbon emissions?

A strong majority supports using a carbon tax to make polluters pay the true cost of emissions.

How do economists view rent controls in terms of housing supply?

The majority believe that rent controls reduce the supply of housing in the long run.

What did economists disagree about regarding student loan forgiveness in 2022?

Economists disagreed on predicting the long-term impacts of student loan forgiveness, citing uncertainty about future tuition and system behavior.

Do economists tend to agree or disagree more on untested policies?

They disagree more on policies that have not been tested, as there is less evidence to assess outcomes.