Final Exam Guide - Everything you need to know! (124 pages long)

3020 views123 pages

grayraven524

2 Dec 2016

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

Ten Principles of Economics

•Society’s resources must be managed because resources are scarce.

oThe limited nature of resources is referred to as scarcity.

•The study of how society manages its scarce resources is called

economics.

•How People Make Decisions

oAn economy is a group of people or polity which interact with one

another as they live.

oPrinciple 1: Trade-offs:

Decisions require trading a resource for another.

Societies must make decisions, typically trading one thing in

degree for another.

•Efficiency is the property of society that allows it to

achieve maximum benefit from the scarcity of

resources.

•Equality is the property of society that distributes

economic prosperity equally among society.

oPrinciple 2: Opportunity Cost

Decisions require comparing the costs and benefits of other

decisions.

•The opportunity cost of a decision is whatever must

be lost in order to complete the decision.

oPrinciple 3: Rational Behavior

People are usually rational.

Rational people systematically and purposefully perform

optimally to achieve their objectives within their opportunities.

The small incremental changes to existing plans of action are

referred to as marginal changes.

Rational people make many decisions by comparing marginal

benefits (the benefits behind a marginal change) and marginal

costs (the costs behind a marginal change).

•Rational behavior occurs if and only if the marginal

benefit of a decision exceeds the marginal cost.

oPrinciple 4: Incentives

An incentive is a factor that induces a person to specifically

act.

•Punishments, such as taxes, are incentives.

•Rewards, such as tax breaks, are incentives.

Unlock document

This preview shows pages 1-3 of the document.
Unlock all 123 pages and 3 million more documents.

Already have an account? Log in

•How People Interact

oPrinciple 5: Trade

Trade between different parties allow for a greater category of

goods and services.

oPrinciple 6: Markets Organize Economic Activity

Communist economies relied on a government or central

planner organizing economic activity.

Previous communist economies have abandoned the

decisions of the central planner and instead allocate their

resources through the decentralized decisions of many

independent firms and households interacting in a market for

good and services, a system known as a market economy.

According to Adam Smith, market economies are guided by an

“invisible hand” that leads markets to desirable outcomes.

When governments prevent prices from adjusting naturally to

supply and demand, the invisible hand is unable to coordinate

the decisions of the independent households and firms that

make up a market economy.

oPrinciple 7: Governments Can Improve Market Outcomes

Market economies require institutions, such as the

government that maintain and protect property rights.

•Property rights are the ability for an individual to own

and control their own scarce resources.

Governments typically interfere in markets through policies

that either promote efficiency or equality.

When a market economy left on its own fails to allocate

resources efficiently, it is called a market failure.

•An externality is when the decisions of an individual

impact the well-being of an uninvolved bystander.

oExternalities can cause market failures.

•The ability of an individual or a small group of

individuals to substantially impact the market is called

market power.

oIndividuals with market power can cause market

failures.

Market economies rewards those with an ability to produce

things that others are willing to pay for.

•The invisible hand does not achieve or assist equality.

•How the Economy as a Whole Works

Unlock document

This preview shows pages 1-3 of the document.
Unlock all 123 pages and 3 million more documents.

Already have an account? Log in

oPrinciple 8: Standards Depend on Production

A polity’s standard of living depends on its ability to produce

goods and services.

•Almost all variations in the standard of living are related

to the quantity of goods and services produced from

each unit of labor input or a unit’s productivity.

oPrinciple 9: Inflation

The increase of quantity of currency decreases the value of

currency.

The increase in the overall level of prices in an economy is

called inflation.

oPrinciple 10: The Short-Run Trade-off Between Inflation and

Unemployment

The short-run effects of increasing the quantity of currency (or

monetary injections) are:

•Overall expenditure increases, increasing demand for

goods and services.

•The increase in demand causes sellers to raise their

prices while simultaneously looking to hire more

workers and produce a larger output of goods and

services.

•An increasing in hiring means a decrease of

unemployment.

The irregular and unpredictable fluctuations in economic

activity, as measured by the changes in production or

employment, are described by a business cycle.

Societies must decide between the short-run trade-off

between inflation and unemployment.

Unlock document

This preview shows pages 1-3 of the document.
Unlock all 123 pages and 3 million more documents.

Already have an account? Log in

Unlock document

This preview shows pages 1-3 of the document.
Unlock all 123 pages and 3 million more documents.

Already have an account? Log in

Document Summary

Society"s resources must be managed because resources are scarce: the limited nature of resources is referred to as scarcity. The study of how society manages its scarce resources is called economics. How people make decisions: an economy is a group of people or polity which interact with one, principle 1: trade-offs: another as they live. Decisions require trading a resource for another. Societies must make decisions, typically trading one thing in degree for another. Equality is the property of society that distributes economic prosperity equally among society: principle 2: opportunity cost. Decisions require comparing the costs and benefits of other decisions. The opportunity cost of a decision is whatever must be lost in order to complete the decision: principle 3: rational behavior. Rational people systematically and purposefully perform optimally to achieve their objectives within their opportunities. The small incremental changes to existing plans of action are referred to as marginal changes.

Related Questions

1.The production possibilities frontier can be used to demonstrate which of the following?
(i) The best tradeoffs that individuals and societies should make
(ii) The tradeoffs forced on individuals and societies because of scarcity
(iii) The wealth maximizing output combination that an individual or society should choose

Select one:

a. (ii) only

b. (i), (ii) and (ii)

c. (i) only

d. (iii) only

2. Unlimited wants and limited resources:

Select one:

a. Can be overcome through innovation

b. Are not problems faced by wealthy industrialized nations

c. Necessitate choices about the goods to services to consume

d. Can be overcome by increasing wealth

3. What are the two sub-fields of economics?

Select one:

a. For-profit economics and not-for-profit economics

b. Private markets and the public sector

c. Microeconomics and macroeconomics

d. Market and non-market economics

4. What do economists mean by "self-interested behavior"?

Select one:

a. It means undertaking activities that benefit yourself and a small group of others who are important to you

b. It means undertaking activities motivated by greed

c. It means undertaking activities that maximize one's own welfare

d. It means wanting to pursue a life of leisure

5. When economists say that people act rationally, they mean that:

Select one:

a. People do not make incorrect choices

b. People are governed by what others think about them and act accordingly

c. People consider the significant consequences of their actions and make decisions that further their self-interests

d. There are certain common codes of conduct that everyone adheres to

6. Which of the following actions reflect self-interested behavior?
(i) Warren Buffett, one of the world's wealthiest individuals, donated more than $30 billion to humanitarian causes such as AIDS and tuberculosis initiatives.
(ii) Pfizer Inc., a private pharmaceutical company, sponsored a disease-management program for Florida's Medicaid patients with chronic illnesses such as asthma, diabetes and heart disease.
(iii) You agree to babysit your 8-year-old brother instead of going to a kick-boxing class.
(iv) You agree to babysit your 8-year-old brother instead of going to a kick-boxing class only if your mother pays you $8 an hour.

Select one:

a. All of the above actions except (iii)

b. All of the above actions

c. (ii) and (iii) only

d. (iv) only

7. Which of the following does not qualify as a market?

Select one:

a. Bloomingdales Department Store

b. The underground drug trade

c. Amazon.com

d. The French Immigration Department

8. Which of the following is not a key assumption of economics?

Select one:

a. People do not undertake activities that make others better off

b. People are self-interested

c. People have limited resources to acquire their wants

d. People are rational

9. Which of the following is not likely to cause the production possibility frontier to shift out?

Select one:

a. An increase in the quantity of innovations

b. An increase in specialization which allows people to develop higher levels of skill at their chosen profession

c. Developing markets where self-interested individuals can interact

d. Relying only on governments to allocate resources

10. Which of the following statements is false?

Select one:

a. Scarcity affects everyone, including very wealthy people

b. Rational people never make mistakes

c. Economists assume people are rational

d. Economists assume people have unlimited desires

11. Which of the following statements is false?

Select one:

a. When you volunteer to help at a soup kitchen, you face an opportunity cost of your time

b. Mother Teresa faced trade-offs when deciding to help lepers in India rather than some other needy group

c. Economics brings tradeoffs to light but does not inform us of which trade-offs society should make

d. When the government funds research into cancer, it is able to avoid trade-offs because public funds are used rather than private funds

12. Which of the following topics does economics study: (i) the study of human behavior; (ii) the market for organ transplants; (iii) cost and benefits of building a suicide barrier in the Golden Gate Bridge; (iv) the functioning of political institutions.

Select one:

a. (i) and (iii) only

b. (ii) and (iii) only

c. All of the topics listed

d. All of the topics except (iv)

13. Which the following would be likely to raise your opportunity cost of going to college full-time?
(i) You have been offered a full-time job as wardrobe assistant to Paris Hilton that pays $60,000 per year.
(ii) You have been offered a merit scholarship that pays for two years of tuition.
(iii) Your landlord increases the rent on the apartment you are currently living in and will continue to live in even if you choose to attend college full-time.
(iv) An increase in the value of your college trust fund set up by your grandfather.

Select one:

a. All of the above

b. (i) and (iii) only

c. All of the above except (ii)

d. (i) only

14. While microeconomics is concerned with the behavior of individuals and firms, macroeconomics:

Select one:

a. Does not make use of "micro" ideas such as opportunity cost or self-interest

b. Is concerned with the performance of entire economies

c. Is concerned with normative matters such as fairness, equality and ethics

d. Is only concerned with government activity

15. You own a Ford car that has lousy gas mileage. You finally trade it for a Hyundai, which is equal in virtually every aspect except that the Hyundai gets much better mileage. What is likely to happen to your gas consumption?

Select one:

a. I get better gas mileage and since the cost of driving has gone down, I will drive more so my gas consumption will remain the same

b. It will fall since I will now use less gas

c. I get better gas mileage and since the cost of driving has gone down, I will drive more so the effect on my gas consumption is indeterminate

d. It will go up since I will now drive more

azurewoodchuck319

Suppose that, instead of taking this test, you could either have worked and earned income or partied and had a pleasurable time. Your opportunity cost of taking the test is the

	a.	forgone working or partying, depending on which was your next best choice.
	b.	forgone work.
	c.	forgone working and partying.
	d.	test because you are taking it.

1 points

QUESTION 2

A trend is

	a.	a measure of closeness on a scatter diagram.
	b.	a general tendency for a variable to rise or fall.
	c.	the maximum value of a variable.
	d.	the difference between the maximum value of a variable and the minimum value of the variable.

1 points

QUESTION 3

A time-series graph measures

	a.	time on the y-axis and the variable or variables in which we are interested on the x-axis.
	b.	time on the x-axis and the variable or variables in which we are interested on the y-axis.
	c.	the value of one variable against the value of another variable.
	d.	the value of an economic variable for different groups in a population at a point in time.

1 points

QUESTION 4

Canada has nationalized health care, so that everyone, regardless of their ability to pay, has some access to health care. Based on this observation, Canada has decided that "everyone, regardless of their ability to pay" is the answer to what microeconomic question?

	a.	Why will we offer health care?
	b.	How will health care be produced?
	c.	For whom will health care be produced?
	d.	What type of health care will be produced and in what quantity?

1 points

QUESTION 5

As a shoe factory adds more workers, shoe production grows, reaches a maximum, and then shrinks. In a diagram that has the number of workers on the horizontal axis and the number of shoes on the vertical axis, the relationship between the number of workers and the number of shoes starts as ________ and then, after the maximum point, is ________.

	a.	positive; negative
	b.	negative; positive
	c.	linear; negative
	d.	positive; linear

1 points

QUESTION 6

Microeconomics includes the study of the

	a.	choices made by individuals and businesses.
	b.	recessions and inflation in the global economy.
	c.	aggregate effects on the national economy.
	d.	reasons why the government changes interest rates.

1 points

QUESTION 7

When Fresh Express Salads decides to mechanically pick all of its lettuce, it directly answers the ________ question.

	a.	when
	b.	for whom
	c.	how
	d.	what

1 points

QUESTION 8

Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours. This argument is based on the assumption that

	a.	the opportunity cost of working is negative.
	b.	the marginal cost of each additional work hour is not important to most workers.
	c.	workers are irrational.
	d.	workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work.

1 points

QUESTION 9

A choice made by comparing all relevant alternatives systematically and incrementally is

	a.	an opportunity cost.
	b.	a benefit.
	c.	a sunk cost.
	d.	a choice on the margin.

1 points

QUESTION 10

A normative statement

i. can be tested as to whether it is true or false.

ii. is considered negative.

iii. depends on a person's values.

	a.	i, ii, and iii
	b.	iii only
	c.	i and iii
	d.	ii and iii

1 points

QUESTION 11

Normative statements

i. describe how the world is.

ii. describe how the world ought to be.

iii. depend on people's values and cannot be tested.

	a.	iii only.
	b.	i only.
	c.	ii and iii.
	d.	ii only.

1 points

QUESTION 12

In order to determine whether to major in economics, a rational individual compares the ________ of the decision.

	a.	positive benefits and normative costs
	b.	normative benefits and positive costs
	c.	marginal benefit and marginal cost
	d.	opportunity cost and the sunk cost

1 points

QUESTION 13

If x increases whenever y decreases, then x and y are

	a.	positively related.
	b.	negatively related.
	c.	not related.
	d.	related but whether positively or negatively related depends on whether the x variable or the y variable is plotted on the vertical axis.

1 points

QUESTION 14

Rational choice

	a.	is what you must give up get what you want.
	b.	is made by comparing different incentives.
	c.	making the choice.
	d.	provides the answer to only the "how" question.

1 points

QUESTION 15

Scarcity results from the fact that

	a.	choices made in self-interest rare not always in the social interest.
	b.	not all goals are desirable.
	c.	people's wants exceed the resources available to satisfy them
	d.	we cannot answer the major economic questions.

1 points

QUESTION 16

When Delta decides to quit flying to Lithuania, it directly answers the ________ question.

	a.	what
	b.	why
	c.	for whom
	d.	how

1 points

QUESTION 17

A normative statement

	a.	says what is currently believed about the way the world operates.
	b.	depends on someone's values.
	c.	cannot use the word "should."
	d.	must be tested to determine if it is correct.

1 points

QUESTION 18

Which of the following statements best describes the study of economics? Economics studies how

	a.	to organize production so that scarcity does not occur.
	b.	to create incentives so that scarcity does not exist.
	c.	firms make profits.
	d.	we make choices in the face of scarcity.

1 points

QUESTION 19

Which of the following best defines economics?

	a.	Economics teaches how to limit our wants.
	b.	Economics is concerned with prices and quantities of goods and services, both at the individual level and at the industry level.
	c.	Economics helps you earn as much money as possible.
	d.	Economics studies how to choose the best alternative when coping with scarcity.

1 points

QUESTION 20

In economics, cost is ________, and benefit is ________.

	a.	the amount of money that you pay for something; the amount of money that someone else is willing to pay you
	b.	what you are willing to pay on the margin; what the government pays you when you are unemployed or retired
	c.	what you must give up to get something; what you are willing to give up to get it
	d.	the amount of money that you pay on the margin; the amount of money that you receive on the margin

1 points

QUESTION 21

If Jessie studies economics for two hours instead of going to the movies with her friends, then

	a.	the opportunity cost of studying is the missed movie.
	b.	Jessie is ignoring a sunk cost
	c.	Jessie is not responding to any incentives.
	d.	Jesse definitely is making a rational choice.

1 points

QUESTION 22

Going skiing will cost Adam $80 a day. He also loses $40 per day in wages because he has to take time off from work. Adam still decides to go skiing.

	a.	The $80 price of skiing is a sunk cost and so did not affect Adam's decision.
	b.	He loses a total of $120 per day, so his decision is irrational.
	c.	His decision is rational if Adam's marginal benefit of spending a day skiing is greater than his marginal cost.
	d.	Adam's lost $40 per day in wages is a sunk cost and so did not affect his decision.

1 points

QUESTION 23

If a curve falls and then rises, it

	a.	has a maximum.
	b.	has a linear relationship.
	c.	has a minimum.
	d.	has a constant slope relationship.

1 points

QUESTION 24

In 2003, Michael Jordan decided to retire from professional basketball. Which of the following was an opportunity cost of his decision?

	a.	the avoidance of pain and injury from playing one more year
	b.	the time he could spend with his family while retired
	c.	the lost salary from playing one more year
	d.	the value of new employment opportunities that would await him

1 points

QUESTION 25

Which of the following statements is a normative statement?

	a.	Military spending as a percent of government spending decreased by 5 percent in the 1990s.
	b.	Every American household should have health care insurance coverage.
	c.	Welfare reform has decreased the amount the government spends on welfare.
	d.	The price of computers fell last year.

greencat417

Final Exam Guide - Everything you need to know! (124 pages long)

Document Summary

Get access

Related textbook solutions

Principles of Economics

Principles of Macroeconomics

Principles of Microeconomics

Related Documents

ECO100Y1 Study Guide - Demand Curve, Marginal Cost, Economic Equilibrium

ECO100Y1 Chapter Notes - Chapter 1-2: Marginal Cost, Marginal Utility, Invisible Hand

[ECO100Y1] - Midterm Exam Guide - Ultimate 15 pages long Study Guide!

Related Questions