Chapter 1 - Principles of Microeconomics - Custom Scholars
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Chapter 1 – Principles of Microeconomics

question
economics is the study of
answer
how we deal with scarcity
question
scarcity
answer
human want for goods, services, and resources exceed what is available
question
scarcity exists at what levels of our society?
answer
all - from the individual to the world as a whole
question
"the father of economics" (and classical economic theory)
answer
Adam Smith
question
what did Adam Smith describe?
answer
how markets could function without centralized control
question
what book did Adam Smith write to describe the Division of Labor concept an how it facilitates economic advantage
answer
"The Wealth of Nations" - 1776
question
what two/twin pillars of free-market economics did Adam Smith define?
answer
- Economic Man
- Efficient Markets
question
Economic Man
answer
- self-serving: doing what is in his own best interest that also benefits society
- not to be confused with greed
question
examples of greed being accepted as a component of free-market economics
answer
- Ivan Boesky
- Jeffery Skilling
multiple bank CEO's
question
microeconomics
answer
the study of how individuals and groups deal with scarcity --> single factors
question
economics is a ______ science
answer
social
question
why is economics regarded as a social science?
answer
it uses scientific methods to build theories that can help explain the behavior of individuals, groups, and organizations
question
conventional wisdom
answer
the body of ideas or explanations generally accepted as true by the public or by experts in a field plays a major role in macro
question
market economy
answer
- market forces determine the availability of goods
- high level of freedom
- low level of personal protections
question
command economy
answer
- government determines the availability of goods
- low level of freedom
- higher likelihood of safety net
question
property rights
answer
freedom to use your own property as you see fit
question
freedom from corruption
answer
corruption erodes economic freedom by introducing insecurity and uncertainty into economic relationships
question
fiscal freedom
answer
a measure of the tax burden imposed by government
question
government spending or expenditure
answer
includes all government consumption, investment, and transfer payments
question
business freedom
answer
an overall indicator of the efficiency of government regulation of business
question
the labor of freedom component
answer
a quantitative measure that considers various aspects of the legal and regulatory framework of a country's labor market
question
monetary freedom
answer
combines a measure of price stability with an assessment of price controls
question
trade freedom
answer
a composite measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and services
question
investment freedom
answer
in an economically free country, there would be no constraints on the flow of investment capital
question
financial freedom
answer
a measure of banking efficiency as well as a measure of independence from government control and interference in the financial sector
question
US ranking
answer
- "mostly free"
- ranked 11th behind both Canada and the UK
question
US strength
answer
- regulatory efficiency
question
US weakness
answer
- limited government
question
normative analysis
answer
subjective, contestable statement that describes what should be done
question
normative analysis example
answer
"everyone should have access to healthcare"
question
positive analysis
answer
objective, testable statement that describes what happens and why it happens
question
positive analysis example
answer
"universal healthcare would result in improved productivity"
question
economic modeling
answer
economists use the terms model and theory interchangably
question
how do models help us?
answer
they enable us to focus on those factors considered important to our argument and deal in the abstract
question
3 components of economic modeling
answer
- hypothesis
- assumptions
- variables
question
the hypothesis within economic modeling
answer
the prediction --> if-then statement of what we are trying to prove
question
assumptions within economic modeling
answer
relevant facts that support the hypothesis
question
variables within economic modeling
answer
2 types:
- exogenous
- endogenous
question
correlation v casusation
answer
the fact that two events are related does not, in itself, mean that one causes the other
question
correlation
answer
two events occur together
question
causation
answer
one event causes the other
question
the fallacy of composition
answer
what is true for the individual is always true for the group
question
example of the fallacy of composition
answer
"if one spectator stands up at a football game he can get a better view. if all spectators stand the advantage is diminished."
question
why are diagrams important to economic education?
answer
- enable us to consolidate data --> quickly pick out changes and trends
- increase level of abstraction to enable us to focus on what is important (to us)
question
typical graph in economics
answer
compares one or more dependent (endogenous) variables to one or more independent (exogenous) variables
question
circular graph in economics
answer
shows flows
question
line and bar graphs in economics
answer
shows the relationship between two or more variables
question
variables on a graph
answer
typically:
- independent --> x axis
- dependent --> y and sometimes z axis
question
pie chart and stacked bar graphs in economics
answer
generally illustrate proportions
1 of 49
question
economics is the study of
answer
how we deal with scarcity
question
scarcity
answer
human want for goods, services, and resources exceed what is available
question
scarcity exists at what levels of our society?
answer
all - from the individual to the world as a whole
question
"the father of economics" (and classical economic theory)
answer
Adam Smith
question
what did Adam Smith describe?
answer
how markets could function without centralized control
question
what book did Adam Smith write to describe the Division of Labor concept an how it facilitates economic advantage
answer
"The Wealth of Nations" - 1776
question
what two/twin pillars of free-market economics did Adam Smith define?
answer
- Economic Man
- Efficient Markets
question
Economic Man
answer
- self-serving: doing what is in his own best interest that also benefits society
- not to be confused with greed
question
examples of greed being accepted as a component of free-market economics
answer
- Ivan Boesky
- Jeffery Skilling
multiple bank CEO's
question
microeconomics
answer
the study of how individuals and groups deal with scarcity --> single factors
question
economics is a ______ science
answer
social
question
why is economics regarded as a social science?
answer
it uses scientific methods to build theories that can help explain the behavior of individuals, groups, and organizations
question
conventional wisdom
answer
the body of ideas or explanations generally accepted as true by the public or by experts in a field plays a major role in macro
question
market economy
answer
- market forces determine the availability of goods
- high level of freedom
- low level of personal protections
question
command economy
answer
- government determines the availability of goods
- low level of freedom
- higher likelihood of safety net
question
property rights
answer
freedom to use your own property as you see fit
question
freedom from corruption
answer
corruption erodes economic freedom by introducing insecurity and uncertainty into economic relationships
question
fiscal freedom
answer
a measure of the tax burden imposed by government
question
government spending or expenditure
answer
includes all government consumption, investment, and transfer payments
question
business freedom
answer
an overall indicator of the efficiency of government regulation of business
question
the labor of freedom component
answer
a quantitative measure that considers various aspects of the legal and regulatory framework of a country's labor market
question
monetary freedom
answer
combines a measure of price stability with an assessment of price controls
question
trade freedom
answer
a composite measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and services
question
investment freedom
answer
in an economically free country, there would be no constraints on the flow of investment capital
question
financial freedom
answer
a measure of banking efficiency as well as a measure of independence from government control and interference in the financial sector
question
US ranking
answer
- "mostly free"
- ranked 11th behind both Canada and the UK
question
US strength
answer
- regulatory efficiency
question
US weakness
answer
- limited government
question
normative analysis
answer
subjective, contestable statement that describes what should be done
question
normative analysis example
answer
"everyone should have access to healthcare"
question
positive analysis
answer
objective, testable statement that describes what happens and why it happens
question
positive analysis example
answer
"universal healthcare would result in improved productivity"
question
economic modeling
answer
economists use the terms model and theory interchangably
question
how do models help us?
answer
they enable us to focus on those factors considered important to our argument and deal in the abstract
question
3 components of economic modeling
answer
- hypothesis
- assumptions
- variables
question
the hypothesis within economic modeling
answer
the prediction --> if-then statement of what we are trying to prove
question
assumptions within economic modeling
answer
relevant facts that support the hypothesis
question
variables within economic modeling
answer
2 types:
- exogenous
- endogenous
question
correlation v casusation
answer
the fact that two events are related does not, in itself, mean that one causes the other
question
correlation
answer
two events occur together
question
causation
answer
one event causes the other
question
the fallacy of composition
answer
what is true for the individual is always true for the group
question
example of the fallacy of composition
answer
"if one spectator stands up at a football game he can get a better view. if all spectators stand the advantage is diminished."
question
why are diagrams important to economic education?
answer
- enable us to consolidate data --> quickly pick out changes and trends
- increase level of abstraction to enable us to focus on what is important (to us)
question
typical graph in economics
answer
compares one or more dependent (endogenous) variables to one or more independent (exogenous) variables
question
circular graph in economics
answer
shows flows
question
line and bar graphs in economics
answer
shows the relationship between two or more variables
question
variables on a graph
answer
typically:
- independent --> x axis
- dependent --> y and sometimes z axis
question
pie chart and stacked bar graphs in economics
answer
generally illustrate proportions
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