Econ 1000 EXAM 1 KSU (part 1)
The analysis of aggregate decision-making and outcomes for society as a whole is known as:
Macroeconomics
In order to make predictions, economists generally assume that individuals are:
Rational and self-interested.
The condition that human wants exceed the amount available from finite resources is known as:
Scarcity.
When individuals engage in voluntary trade, it means:
Each person values what he/she is receiving more than what he/she is giving up. AND They are happier.
Money is useful for exchange because it is:
A medium of exchange.
A convenient unit of account.
A store of value.
simple transactions
The law of demand states:
There is a negative relationship between the price of a product and the quantity consumers are willing
to buy.
What happens to the price and quantity of sandwiches when the price of bread increases?
Increased price, decreased quantity
What happens to the price and quantity of an inferior good when incomes rise?
Decreased price, decreased quantity
What happens to the price and quantity of kale when the seller is subsidized for producing it?
Decreased price, increased quantity
a postive statement:
can eventually be proven "right" or "wrong" by gathering enough data and evidence.
normative statement:
a statement that aims to assess the desirability of how the world is or functions, perhaps with suggestions of things that could be done to improve matters.
the study of how individual decision maker behave and interact with each other, often with a focus on how households and firms behave and interact
with each other in markets.
Microeconomics
What assumptions do economists assume to be generally true about human beings and the world?
people are self-interested
people are rational
we assume people make decision at the margin
resources are scarce
What are the benefits of trade? Between individuals? Between countries?
Trade is mutually beneficial: BOTH PARTIES ARE BETTER OFF!
What is opportunity cost?
a general concept that refers to the cost of giving up the best alternative that must be foregone in order to do or acquire something.
what is sunk cost?
the costs that have already been incurred and cannot be changed by any decision
Example of opportunity cost
The opportunity cost of going to college is the money you would have earned had you instead chosen to start working.
example of sunk cost
After getting your degree, you might graduate into a poor job market with the added bonus of so much student loan debt that forgoing college would have been the better choice.
But now the cost of college is a sunk cost. You can't ask for your money back.
What is the elasticity of demand and what factors influence it?
a measure of how much the quantity demanded of a good responds to a change in the price of that good
What factors cause the demand function/curve to shift?
wealth
prices of other goods
buyer preferences
taxes, subsidies
# of buyers
What factors cause the supply function to shift?
prices of inputs
number of sellers
technology
taxes and subsidies
What is the difference between a change (increase/decrease) in demand and a change in quantity demanded?
change in quantity demanded results from a change in price and moves along the demand curve.
The only factor that influences quantity demanded is price.
What is the difference between a change in supply and a change in quantity supplied?
change in supply is
an entire shift of the curve to the left or right
change in quantity supplied is
a change in the amount offered for sale caused by a change in price; a movement along the curve
command economies
central plan
gov't owned property
bureaucratic rationing
market economies
free to choose
private property
price rationing
allocating resources in market economy
the forces and interaction of supply and demand for each commodity determines what and how much to produce. Prices are the reflection of the scarce resource.
What outcomes are associated with economic freedom?
political rights
civil rights
gender inequality
inflation
a continual increase in the price of goods and services
real price
the dollar price of a good relative to the average dollar price of all other goods