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Econ 1100
Chapter 1 and 2 test
38
Economics
Undergraduate 1
02/05/2011

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Term
"one who manages a household"
Definition
economics
Term
refers to the fact that every society in the world has limited resources and therefore cannot produce all the goods and services that people wish to have. Because resources are limited, products that can be produced with those resources are also limited
Definition
Scarcity
Term
a social science that seeks to understand how societies allocate their limited resources to satisfy unlimited human wants
Definition
economics
Term
What century was economics established?
Definition
18th century
Term
Who established economics?
Definition
Adam Smith
Term
What idea did classical economists embrace in the 18th century?
Definition
laissez-faire
Term
What are the three fundamental questions?
Definition
1. What to produce?
*Choices about the types of products-outputs- to be produced*
2. How to produce?
*Choices about the resource -inputs- usage*
3. For whom to produce?
*Choices about the distribution of goods and services -outputs-*
Term
resources used by firms in their production processes to make outputs.
Definition
Inputs (factors of production)
Term
What are the four fundamental economic resources?
Definition
1. Land (farmland, industrial site, mineral deposits)
2. Labor (accounting skills, landscaping skills)
3. Capital (machinery, computers, buildings)
4. Entrepreneurship (Bill Gates)
Term
goods and services that are either consumed (i.e. hamburger) or used for further production (i.e. ground meat used to make a hamburger.)
Definition
Outputs
Term
if outputs are consumed they are called ________?
Definition
Final Goods and Services
Term
if outputs are used in the production of another product they are called _________?
Definition
intermediate goods and servcices
Term
principle that actions should be taken only if added -incremental- benefit is greater than added -incremental- cost.
Definition
Marginal Analysis
Term
People make decisions by weighing costs and benefits, their decisions are likely to change in response to changes in costs and benefits.
Definition
Incentives
Term
True/False

Everybody benefits from trade.
Definition
True
Term
True/False

Somebody's gain is somebody else's loss.
Definition
False
Term
an economy which allocates resources through the decentralized decisions of market participants
Definition
Market Economy
Term
a good way to organize economic activity
Definition
Markets
Term
government intervention can be most useful when there is ________.
Definition
Market Failure
Term
a situation in which a market left on its own fails to allocate society's scarce resources efficiently
Definition
Market Failure
Term
Two Examples of Market Failure
Definition
Externalities

Market Power
Term
occur when one person's actions in the market impact the well-being of third parties who, unwillingly, receive a benefit or incur a cost
Definition
Externalitites
Term
the ability of a single economic unit or a group of units to have a substantial influence on market prices. It is important to understand that this principle states that the government can IMPROVE market driven economic outcomes.
Definition
market power
Term
the amount of output per unit of input utilized in production.
Definition
Productivity
Term
this is very important in the long run in improving a nation's standard of living.
Definition
productivity
Term
occurs when overall prices in the economy rise.
Definition
Inflation
Term
reduces the purchasing power of some of our assets such as cash in our pockets or in our checking accounts. This happens when the government creates too much money.
Definition
Inflation
Term
a curve that shows the inverse relationship between the unemployment rate and the inflation rate. Normally downward sloping
Definition
Phillips Curve
Term
a statement about cause and effect, action and reaction in economic life. It is a deliberate simplification of relationships used to explain how they work (i.e. the theory of supply and demand)
Definition
An Economic Theory
Term
a formal statement (usually a mathematical statement) of a theory. It is a small-scale version of some aspect of the economy. (i.e. Quantity Demanded= 20,000-500xPrice)
Definition
Economic Model
Term
an illustration of a mathematical relationship between variables. It is a picture of an economic model.
Definition
Graph
Term
a measure that can change from time to time, or from observation to observation (i.e. the price of a product)
Definition
variable
Term
simply means omitting, ignoring details.
Definition
Abstraction
Term
model of the economy that shows how dollars, inputs, outputs flow through goods and services, and inputs markets among households and firms.
Definition
Circular Flow Diagram
Term
model that shows various combinations of goods and services that can be produced given the available resources and the technology
Definition
The Production possibility frontier
Term
statements that attempt to describe the world as it is. Therefore are descriptive (i.e. minimum wage laws reduce employment opportunities for low-income earners)
Definition
Positive Statements
Term
statements that attempt to describe how the world ought to be. Therefore are prescriptive (i.e. the government should reduce the budget deficit by raising taxes or decreasing its spending)
Definition
Normative Statements
Term
a graph on which the value of one variable is plotted against the value of another variable
Definition
Scatter Diagram
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