Chapter 1 Review: What is Economics?

Transcription

1 Chapter 1 Review: What is Economics? CHAPTER 1 Study Questions 1. Scarcity The condition where wants are greater than the resources available to satisfy those wants. 2. Wants Things that we desire. 3. Production Possibilities Frontier A representation of all the possible combinations of TWO goods that can be produced in a certain period of time. 4. Opportunity Cost The most highly valued, or next best, alternative that is forfeited when a choice is made. 5. Economics The science that studies the choices of people trying to satisfy their wants in a world of scarcity. 6. Microeconomics The branch of economics that deals with human behavior and choices as they relate to relatives small units. 7. Theory An explanation of how something works, designed to answer a question that has no obvious answer. 8. Tangible A good that can be touched. 9. Intangible The opposite of #8, typically describes a service. 10. Disutility Another word for dissatisfaction or unhappiness. 11. Utility To an economist, another word for satisfaction or happiness. 12. Incentive Something that encourages a person to take action. 13. Capital Produced goods that are used for further production. 14. Entrepreneurs People who have a special talent for taking advantage of new business opportunities.

2 15. Explain this statement: Because scarcity exists, choices must be made. Because scarcity exists, people must choose which of their many wants and needs they will satisfy when they can t have everything. 16. Why do we have a rationing device? Because scarcity exists and we need to decide who gets what portion of all the resources and goods available. Price is the most widely used rationing device in our society. 17. You attend a public school where there is no charge for admission fees or tuition. Does it follow, then, that you face no opportunity cost in attending school. Explain your answer. The opportunity cost of attending high school is what one would be doing if not attending high school. Opportunity costs exist even when tuition does not. 18. Explain how scarcity is illustrated by a production possibilities frontier. The PPF illustrates scarcity by showing which items are available and which are not given the limited resources in the economy of two goods. 19. The owner of a movie theater decides to raise ticket prices from $10 to $12 a ticket. Since he sells an average of 789 tickets a day, he might expect to collect $1,578 more per day in ticket sales. Why might be disappointed? He might be disappointed because demand might fall as the price goes up. 20. Imagine you decide to go to a concert. A ticket to the concert costs $50. Also, you must take two hours off work, and you earn $10 an hour at work. The opportunity cost of going to the concert is $70 and two hours of work. 21. The owner of a coffee shop decides to raise the price for a cup of coffee from $1 to $1.50. Since he sells an average of 1,234 cups of coffee a day, he might expect to collect $617 ($.50 x 1234) more per day in coffee sales.

3 Look at the production possibilities frontier to the right to answer the next five questions. 22. What are the two products in the example? Boats and Trucks 23. Which point or points are feasible (possible) in that economy? A, B, C, and D 24. What is the maximum production of trucks? 10, Which point or points represents what is unavailable to us? E 26. A company is deciding between option A and option C. Ultimately, they choose option C. What is the opportunity cost of boats based on this decision? 5,000 boats 27. In class you looked at the opportunity costs between guns and butter. In that example, what did guns represent? National defense and homeland security What did butter represent? Civilian or domestic goods Chapter 2 Review: Economic Systems and the Global Economy? CHAPTER 2 Study Questions 1. Traditional An economy based on customs and beliefs that have been handed down from one generation to the next. 2. Mixed An economy with a mixture of capitalist and socialist elements. 3. Economic System The way in which a society decides what goods to produce, how to produce them, and for whom they will be produced. 4. Free Enterprise An economic system in which individuals (not government) own most, if not all, the resources and control their use.

4 5. Socialism An economic system in which government controls and may own many of the resources. 6. Income Distribution The way all the income earned in a country is divided among different groups of income earners. 7. Economic Plan A government program specifying economic activities, such as what goods are to be produce and what prices will be charged. 8. Globalization The integration of economic activities across (national) borders; a phenomenon by which economic agents in any given part of the world are affected by event elsewhere in the world; the extension of the division of labor and specialization beyond national borders. 9. Vision Karl Marx and Adam Smith each had one; a certain way of looking at and explaining the world. 10. Labor Theory of Value States that any value in produced goods comes from the labor used to produce those goods. 11. Offshoring Work done for a company by people other than the company s employees if the people doing the work live in a country other than the country in which the company is located. 12. What are the three economic questions? What goods will be produced? How will the goods be produced? For whom will the goods be produced? 13. Who believed that self-interest causes people to work hard and take risks, that the division of labor creates greater productivity and wealth and that the government should provide national defense, a system of justice and public works? Adam Smith 14. In a free enterprise (2 words) or market economic system, resources are owned and controlled by private individuals. 15. What book is Adam Smith s major work related to economics? The Wealth of Nations 16. What book is Karl Marx s major work related to economics? Das Kapital 17. By how much (per year) has globalization affected U.S. income? Roughly $1 trillion per year

5 18. Is there greater income inequality in the world today than, say, 100 years ago? Explain. Yes. One hundred years ago, people in rich countries had about 10 times more income than people in poor countries. Today, they have about 75 times more income. 19. What are three reasons that workers in other countries don t work the same number of hours per year as workers in the United States? 1. Workers in some countries have a stronger preference for leisure 2. Taxes are higher in some countries so there is less incentive to work 3. Higher social assistance benefits in some countries 20. Explain how increased globalization might lessen intolerance and conflict in the world. People might be less inclined to attack a trading partner. Chapter 3 Review: Free Enterprise CHAPTER 3 Study Questions 1. Total Revenue The price of a good times the number of units of the good sold. 2. Incentive Something that encourages or motivates a person toward an action. 3. Ethics Principles of right and wrong, morality and immortality, good and bad. 4. Public Property Any good that is owned by the government. 5. Entrepreneur A person with a special talent for searching out and taking advantage of new business opportunities, as well as for developing new products and new ways of doing things. 6. Loss What a firm incurs if a product s total cost is greater than total revenue. 7. Free Rider A person who receives the benefits of a good without paying for it. They are one of the reasons why a private business firm will not supply a nonexcludable public good because the firm cannot collect payment.

6 8. Contract An agreement between two or more people to do something. 9. Public Good A good of which one person s consumption does not take away from another person s consumption. 10. Private Good A computer is an example of this type of good. 11. Positive Externality A beneficial side effect of an action that is felt by others. 12. What are the five major features of a free enterprise economy? Private Property Choice Voluntary Exchange Competition Economic Incentives 13. National defense is a good example of a public good because it is difficult to exclude people from receiving the benefits from national defense once it is provided. 14. The government will provide nonexcludable public goods and pay for them with taxes. 15. The Bill of Rights states that private property [shall not] be taken for public use, without just compensation. 16. Entrepreneurs are motivated by potential profit. 17. Open disclosure, obeying the law and being truthful are all responsibilities of people in a free enterprise economy. 18. Define open disclosure. The responsibility of giving the other person accurate information about what is being exchanged. 19. Calculate the profit or loss in each of the following situations (TR stands for total revenue, and TC stands for total cost). Be sure to put a minus (-) in front of a loss figure. TR = $400; TC = $322 Profit/Loss = $78 TR = $4,323; TC = $4,555 Profit/Loss = - $232 TR = $576; TC = $890 Profit/Loss = - $314 TR = $899,765, TC = $456,897 Profit/Loss = $442,868

7 20. An economist would say that profit attracts resources. What does this statement mean? (Think about profit being a signal) Give an example to illustrate your point. Profit attracts resources into the production of the good from which the business is earning a profit. For example, if company B is earning a profit on the production and sale of good X, then other companies currently not producing good X will shift resources into the production of good X. Scenario: Bryan sells gadgets at a price of $7 apiece. His average cost is $5 per gadget. On Monday, Bryan sold 10 gadgets; on Tuesday, he sold 7 gadgets; on Wednesday, he sold 9 gadgets; on Thursday, he sold 11 gadgets; and on Friday, he sold 13 gadgets. 21. What was Bryan s told revenue for the week? $ What was Bryan s told cost for the week? $ Did Bryan have a profit or a loss for the week? profit 24. What was the dollar amount of Bryan s profit or loss for the week? $100 In questions 25-33, identify the part of the circular flow diagram in which the economic activity listed occurs. Write 1, 2, 3 or 4 in the blanks provided Julie attends a public school Travis buys a new ipod Joe works 20 hours a week at Jack in the Box Monique does research at a large corporation Microsoft relies on the Justice Department to enforce copyright laws Dianne drives on County Road 1 to get to 4 work Bruce leases his commercial building to Widgets, Inc Debbie buys a computer from her local office supply store Adam buys a lawn mower from Home Depot.

8 Chapter 15 Review: International Trade and Economic Development CHAPTER 15 Study Questions 1. Exports are goods produced domestically and sold to foreign countries. 2. A society benefits from trade because people can specialize, products are cheaper and a wider variety of goods become available. 3. Imports are goods produced by foreign countries and sold domestically. 4. Country A has a(n) comparative advantage in the production of a good if it can produce the good at a lower opportunity cost than country B. 5. Absolute advantage refers to the situation in which a country can produce more of a good than another country can produce with the same quantity of resources. 6. When a tariff is applied to a good, the price of the good increases (increases or decreases). 7. The North American Free Trade Agreement (NAFTA) eliminates trade barriers among the member countries. 8. If exchange rates change from 10 Mexican pesos per American dollar to 15 pesos per dollar, the dollar has appreciated (appreciated or depreciated). 9. A positive balance of trade exists when a country s exports exceed its imports. This is also known as a trade surplus. 10. The European Common Market is made up of 25 members as of 2005 that trade among themselves with no restrictions. A tariff imposed on U.S. goods by one member would apply to all members. 11. The World Bank and the International Monetary Fund are institutions that lend money to the world s poor and less-developed countries and fund economic development projects. 12. Outsourcing is the term used to describe work done for a company by employees of an outside company.

9 13. A less-developed country is a country with a low per capita GDP. Go online and find three examples of countries that meet this classification. Haiti Bangladesh Bhutan 14. After a tariff is imposed on imported cars, would you expect consumers to buy more or fewer imported cars, all other things remaining the same? Explain your answer. A tariff raises the price of imported goods, so consumers would be expected to buy fewer imported goods. Therefore, consumers would buy fewer imported cars if a tariff were imposed on them. 15. If the price of an Irish sweater is 30 and the dollar-euro exchange rate is $1 = 0.70, what does the sweater cost in dollars? $42.85 (calculation: 30 / 0.7 = 42.85) 16. If the price of a U.S. car is $20,000 and the dollar-yen exchange rate is $1 = 129, what does the car cost in yen? 2.58 million yen (calculation: 20,000 x 129 = 2.58) 17. If the United States can produce either 20 units of clothing and 40 units of food or 60 units of clothing and 0 units of food, what is the opportunity cost of producing 1 unit of food? 1 unit of clothing (calculation: 20 / (60-40) = 1) 18. If Brazil can produce either 100 units of clothing and 0 units of food or 30 units of clothing and 50 units of food, what is the opportunity cost of producing 1 unit of clothing? 0.71 unit of food (calculation: 50 / (100-30) = 1) 19. Suppose the United States buys 1 million cars from Japan each year. If the dollar depreciates relative to the yen, will American buy more or fewer than 1 million cars from Japan? Explain your answer. The United States will buy fewer than 1 million cars. If the dollar depreciates relative to the yen, the price of Japanese cars increases for Americans. As a result of the higher price of Japanese cars, Americans will buy fewer.