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Chapter 1
Explain why an economist would say, "There is no such thing as a free lunch."
Scarcity
Someone has to pay for it
Opportunity cost
How does the slope of a production possibilities curve reflect opportunity costs?
The curve that shows the combinations of different goods and the costs
Also shows the maximum you can produce
The curve/frontier shows the maximum, above this is not possible, below or inside shows inefficiency
Describe the shape of the typical production possibilities curve and explain why it has this shape.
Arc
Scarcity causes there to be a max we can produce
When we make one this we trade off making something else
Efficiency
Why do opportunity costs increase as society produces more of a good?
The more you are making of something, the less you can make of something else
loss/gain
Explain the concept of inefficiency in terms of a production possibilities curve.
Below the curve, less then max
Explain the difference between macroeconomics and microeconomics. Give examples of each.
The study of aggregate economic behavior, of the economy as a whole
The 'big picture'
Full employment
Econ growth
Theory vs reality
We model the economy and make simplifying assumptions
individuals and purchases
composition of the economy, popular products
How does the market mechanism answer the what, how, and for whom questions?
What to produce
the point we choose
How to produce
the production methods used to produce
For Whom to produce (hardest question)
Mechanic to determine wants and needs, satisfaction, and who must go without
Those who have the ability to pay
Desires & who can pay
Chapter 2
How is per capita GDP calculated, and what does it tell us about the economy?
The amount of GDP in consideration to the population
A GDP of 1000 is better with 10 ppl than 100
If the GDP grows faster than the population then the standard of living rises
If slower than population there's a decline
Very different between rich and poor nations
How is per capita GDP affected by GDP growth and population growth?
Rich Nations
populations grow slowly, so GDP per capita increases, improving the standard of living
Poor Nations
population increases rapidly and GDP may be declining, so GDP per capita is stagnant or decreases, make it difficult to raise living standards
Compare the composition of U.S. output in the year 1900 with its composition in the year 2000.
Growth
went more from goods to services
US growth is roughly 3% per year for the last 100 years
Population has grown 1%
What are externalities, and how do they affect who pays the true cost of a polluting factory?
A benefit or cost born by a third person not part of the transaction
Factory pollution hurts child
Government is supposed to stop this if it's a cost, encourage benefit
Ex gov pays for you to get a flu shot
What factors contribute to the high level of productivity of the American worker?
Education - human captial
What is human capital, and how does it affect U.S. productivity?
the knowledge and skills possessed by the workforce
education
Why would production that takes place in Canada not be included in the GDP of the United States, even if it is a U.S. company?
It takes place outside the US border
Why has the reduction in some industries such as iron and steel not resulted in poor economic outcomes in the United States?
Factor mobility
- moving people or resources to another area
The US is more of service than product industry
Why are human capital differences often used as an explanation for differences in GDP across countries?
Education is a determining factor
Chapter 3
Why are “free” goods provided by the government not free?
The government/our taxes pay for it
Define the law of demand and explain how this relates to typical human behavior.
Ceteris paribus, as price goes up quantity of demand goes down
Downward sloping curve
When the prices goes down, the demand goes up
Price changes quantities demanded/purchased, not demand
Price changes quantity
Primary economic activity
When the price does not directly affect demand
Ex. Gas
Law of Supply (producer's view)
As the qty of a good supplied increases, the price increases
Upward sloping curve of price and quantity
Changes in prices change Quantity's not the supply
Factors that change supply
Changes in Technology
Factor Costs
The cost of raw materials
Taxes and subsidies (gov gives you money to produce)
Expectations
Ex batteries at Christmas increase
Change in the price of other goods/products
Change in the price of a good affects how many people produce and sell it
Number of Sellers
Inter competition
Ex Mexican restaurants in town
How is the concept of demand different from desire?
Demand is changed based on
taste
income
expectations
price of other products
Number of buyers
Demand is the ability to purchase
Desire is what people want to have
What are substitute goods, and how does a change in the price of one substitute good influence the demand for the other?
which would you buy a or b? (Coke or Dr.Pepper)
Cheapest one is typically bought
Qty demanded of chosen product increases
Demand for coke decreases if you buy Dr. Pepper
Explain the difference between a "change in quantity supplied" and a "change in supply."
As the qty of a good supplied increases, the price increases
Upward sloping curve of price and quantity
Changes in prices change Quantity's not the supply
What is a market surplus, and how does the market attempt to resolve a surplus?
The amount by which quantity supplied (Qs) exceeds quantity demanded (Qd) at a given price; excess supply
Price is too high
Qs>Qd=Surplus
Qs<Qd=Shortage
Clearance/cost reduction
Define a price ceiling and explain how it affects resource allocation in a market. Give a real-world example of a price ceiling.
A price cap,
ex. insulin can’t be more than $50
Chapter 4
Explain why government-funded college education can be considered a role of the government.
Market-reliant economies grow faster than gov-dominated economies
Entrepreneurs can freely pursue opportunities in the market. They will innovate and create new products. This leads to faster economic growth
Roles:
Providing a Legal Framework
Property rights
Rule of law (contracts, fraud)
Protecting the environment
Negative externalities
Protecting Consumers
Fostering competition
Fostering Safety
Protecting Labor
Workplace security
Child labor laws
Minimum wages
Overtime provision
Why is it safe to assume that national defense will always be provided by the government instead of the market?
It’s a public good
the market only cares about making money not people
users cannot be differentiated
Why does the nature of public goods make it unlikely the market will produce the optimal quantity?
Public goods benefit people/society they don’t necessarily make money but are very costly
Does a state sales tax function as a progressive, regressive, or proportional source of revenue, and why?
proportional
Pay a percentage rate, more cost more tax
What is government failure, and how would it be demonstrated on a production possibilities curve?
non regulation? overproduction of one good and not enough of another?
inefficiency
What is public choice theory, and how can it affect government intervention?
Public choice theory is an economic theory that applies the principles of individual decision-making to the study of collective decision-making in the public sector. It suggests that individuals, including politicians and bureaucrats, act in their own self-interest when making decisions. This theory can affect government intervention by highlighting the potential for government officials to pursue policies that benefit themselves or special interest groups, rather than the overall welfare of society. It emphasizes the importance of understanding the incentives and motivations of individuals in the public sector when analyzing government intervention.
How do election cycles provide an argument against ballot box economics?
Election cycles can provide an argument against ballot box economics because politicians often prioritize short-term gains to secure votes, rather than making long-term economic decisions. This can lead to policies that focus on immediate benefits, such as tax cuts or increased government spending, without considering the long-term consequences or sustainability. As a result, economic decisions may be driven by political motives rather than sound economic principles, potentially leading to inefficiencies and negative impacts on the overall economy.
Voting mechanism substitute for the market mechanism, and allocating resources to the public sector and how to use them.
Captial
not money, machinery/technology
Anything created by man to produce and be efficient (machines, etc.)
Market Efficiency
Cannot determine the best point on the curve, external factors decide, war etc.
The index of economic freedom ranks nations
More freedom = more economic development
Rule of law
Size of government
Regulatory efficiency
Open markets
Ceteris Paribus
All other things unchanging
****Circular Flow
4 points:
Households provide factors to the factor market
Households purchase products to businesses
Business sell to households
Business buy factors of production (land, labor, capital, entrepreneurship ability)
Externalities
Positive Externalities
Underproduced
Negative Externalities
Overproduced
What is the macro goals of economic intervention
The gov wants to create full employment
Price stability/control inflation
Economic growth
Inflows
Taxes (fees & user charges too)
Borrowing
Outflows (uses of funds)
Purchases of goods and services
More than 50% of gov expenditures/outflows are transfer payments - gov aid without expecting a return
Payments for resources used
inequity
Income Redistribution
Reduces the inequity in incomes
Provides a minimum amount of merit goods
Gov intervenes when people don’t have enough to survive
Less than $3 per day
Major source of income at each gov level
Federal - Income tax (largest single source)
State - Sales tax
Local - property taxes
Progressive tax system
The more you earn, the more you pay
Greater fraction of their income in taxes
Regressive Tax System
Social Security
Only up to $114,000
As income rises, tax falls
Flat rate that does not increase and stops taxation after 114,000
The US Economy
5% of the world population
20% of the output
Remember china and india
Adam Smith
The invisible hand
The market mechanism
Laissez-Faire
leave it alone, not government intervention
GDP
DOLLAR MEASURE of final output WITHIN a nations borders
Capital vs Labor Intensive Populations
capital is machinerey
high ratio of capital to labor
low ratio of labor to capital
Subsidies
Gov benefits
ex - tesla discount
Market Mechanism
The market mechanism is a system in economics where the forces of supply and demand determine the price and quantity of goods and services traded.
Note 
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