Chapter 1
What is economics?
Economics is the study of how people use their limited resources to satisfy their unlimited wants.
How people and society satisfy wants under conditions of scarcity.
What is a positive economics (statement)?
The distinction between positive analysis and normative analysis is in whether a matter is subjective or objective. Positive issues are of a factual nature and normative issues are matters of opinion.
Positive: How the world works
Normative: How the world (SHOULD) work
True or False: The supply curve for a good shows how the quantity supplied depends on the price. According to the law of supply, as the good’s price rises, the quantity supplied rises. That’s why the supply curve slopes upward.
True
Gross domestic product can be measured as the sum of _______.
consumption, investment, government purchases, and net exports
What role does scarcity play in economic decision-making?
It forces individuals and societies to prioritize and make trade-offs
A point inside the production possibilities frontier is _______.
feasible, but inefficient
Today's supply curve for corn could shift in response to a change in _______.
a. today's price of corn
b. today's demand for corn
c. consumer's income levels
d. the expected future price of corn
the expected future price of corn
Is social security part of GDP?
No, it is a transfer payment.
Does everything have an opportunity cost?
Yes,
opportunity cost is the next best thing you could be doing
What is comparative advantage?
The ability to produce a good or service at a lower opportunity cost than another.
What is a substitute good?
A good/service that can replace another good in the market.
It can leading to a decrease in demand for the original good
How do we calculate the GDP deflator?
Nominal GDP/ Real GDP x 100
What is opportunity cost?
How do we calculate it?
The value of the next best alternative that is foregone when making a choice.
What you give up/what you obtain
China and Japan both produce clothing and computers. China is said to have the comparative advantage in producing clothing if _______.
Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer. In order for China to have a comparative advantage in producing clothing, the opportunity cost of producing clothing must be lower for China than for Japan.
What happens to the price and quantity of dog treats if the demand for dog treats increases and the supply of dog treats increases?
We do not know what happens to price, Quantity increases
If your grandparents buy a new retirement home in the United States, U.S. GDP accounts record the transaction as _______.
Investment
What term describes the situation where a society has limited resources and therefore can't produce all goods and services people wish to have?
Scarcity
By specializing and trading, economies
produce at a point on the production possibilities frontier and consume at a point beyond it.
Pam considers t-shirts and gym classes to be complementary goods. How will Pam react if the price of gym classes increases?
Her quantity demanded of gym classes will decrease, and her demand for t-shirts will decrease
Real GDP is measured in ______ prices, while nominal GDP is measured in ______ prices.
Base year, current year