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ECON CHAPTER 2 TEST
econ
| Question | Answer |
|---|---|
| What are economics key concepts? | Scarcity and choice – Ceteris paribus – Opportunity costs |
| What is scarcity and choice | Economists believe that: – Material resources are limited – Material wants are unlimited As a result of this conflict, societies must choose how to spend their limited resources |
| What is the economizing problem | the conflict between scarce material resources, and unlimited material wants. |
| Ceteris Paribus | ALL OTHER THINGS BEING EQUAL This means holding everything else constant, except for the variables in our hypothesis or model. • If we hold everything else constant, we hold them fixed. • If we hold them fixed, we can ignore them. |
| What is Ceteris Paribus | a key assumption, because it allows us to treat everything outside of our model as unimportant and not relevant to what we are studying. |
| What are Opportunity Costs | Highest valued alternative given up when a choice is made. You deal with opportunity costs every time you make a choice about spending your money or your time. |
| What do businesses face with opportunity costs | Which bill to pay first? • What upgrade to do first? |
| Opportunity Costs military | A country that emphasizes production of military goods must forego production of consumer and capital (investment) goods. • For example: USA 1942-1945 |
| Opportunity costs consumer | A country that emphasizes production of captial goods must forego production of some consumer and some military goods Japan 1945-1985 |
| What are the factors of production | Land , labor, capital and entrepreneurship |
| What are the scarce resources called | – Resources of production – Factors of production |
| What is labor | is the physical and intellectual services of people at work. is the source of all value. • This includes – Innate abilities – Any skills obtained through education and training. |
| What is Capital | is all human made products used to produce other goods and services. • Examples include: – Everything used at work, starting with pencils Machinery of all types – Buildings, including houses – Transportation systems – Communication systems |
| What is Land | shorthand for all natural resources. • This includes – Farmland – Oil, minerals, water |
| What are the 4 assumptions to create a production possibilities curve | – Efficiency – Fixed resources – Fixed technology – Two “baskets” of products in the economy. |
| What does efficiency mean | or an economy means: • Full employment • Full production • Efficient use of resources |
| What level of unemployment is full employment? | Full employment runs from 2% unemployment to 6% unemployment. • The more conservative you are as an economist, the higher the number you would pick. • The more liberal, the lower the number. |
| What does full emplyment mean | Everyone has a job |
| What does full production mean | All businesses are operating at their maximum |
| what does efficient use of resources mean | Businesses try to minimize costs & maximize outputs with the fewest inputs |
| What does fixed resources for the economy mean | Resources of labor, capital and land • All types are fixed in number. |
| What does fixed technology for the economy mean | Firms can only use the technology existing at the time of the model |
| What is military basket | contains all types of military products such as tanks, ammunition. |
| what is civilian basket | contains all types of consumer products, such as cars, clothes, food. |
| What are the result of assumptions efficiency | The assumptions under efficiency tell us that all resources are fully utilized. • In other words, this economy is producing at its maximum capacity. • We have a boom economy. |
| Results of Assumptions: fixed resources and technology | The assumptions of fixed resources and technology tell us that we are looking at the economy at one point in time. • It is a snapshot of the economy. |
| Results of Assumptions: two “baskets | We can instantly and freely divide the products of this economy into either civilian or military products. • We can then see the trade off between producing one or the other of these two types of baskets. |
| Why is the Production Possibilities Frontier always bowed outwards? | This is due to the law of increasing marginal opportunity costs. |
| What are marginal opportunity costs? | are the amount of one product that must be given up to obtain one additional unit of another product. |
| What is the law of increasing marginal opportunity costs? | As an economy chooses to produce more of one or more products, the marginal opportunity cost will rise. |
| Why do increasing marginal opportunity costs rise? | Marginal opportunity costs will rise because resources of production are not interchangeable. |
| Why are resources not interchangeable? | It is costly, in money, time, effort to: – Retrain workers – Retool machinery – Redesign buildings – Switch between natural resources |
| Post Hoc Fallacy | This is confusing cause and result |
| Correlation vs Causation | Beware of the difference between correlation and causation. Correlation is coincidence Causation X causes Y |
| Economics | There are two main branches of economics |
| What is macroeconmics | study of economy |
Created by:
bellam08
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