ECON101 Midterm: Econ Midterm 1 study notes.docx

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bronzespider280

7 Apr 2014

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Fiona Rahman

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ECON101 Full Course Notes

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All economic questions arise because we want more than we can get. Our inability to satisfy all our wants is called scarcity. Because we face scarcity, we must make choices. The choices we make depend on the incentives we face. An incentive is a reward that encourages an action or a penalty that discourages an action. Factors of production are grouped into four categories: Efficiency is achieved when the available resources are used to produce goods and services: at the lowest possible price and. In quantities that give the greatest possible benefit. Equity is fairness, but economists have a variety of views about what is fair. Six key ideas define the economic way of thinking: Cost is what you must give up to get something. Most choices are how-much choices made at the margin. A rational choice is one that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice.

Related Questions

Economics is nothing more than the study of scarcity and choice. It's called the Economizing Problem.

Economics is also the study of human action---why people make the choices they do.

We have finite (limited) resources and infinite (unlimited) demand for goods and services. We must, therefore, use rational decisions as to how to allocate these resources so that we can produce the goods and services that satisfy as many needs and wants as possible.

Needs are those things that make life possible---food, clothing, shelter, etc. Wants are the things that make life easier---glass in windows, carpet on the floor, a refrigerator to keep your beer cold, etc.

The resources we are trying to use wisely are not confined to money. We are talking about talent, ability, drive, ambition, etc. We can't all be brain surgeons. Nor would most of us want to be. We have different needs and wants that drive our ambitions. I have 5 grandchildren. The oldest two are twins---a boy and a girl. My granddaughter graduated from Idaho University with a bachelor's and a master's degree in accounting in 5 years. She passed the CPA exam on the first try. She now lives in Panama and works for BMW. She speaks, reads, and writes 4 languages, including English. Her brother finally graduated from the University of Arkansas in May 2016 after 8 years! Why did it happen this way?? They were raised the same way by the same parents. Why was my granddaughter drove to succeed and my grandson so listless?

Then there is subjective valuation and opportunity cost. Opportunity cost is nothing more than what you have to give up to do something else. Some of you might have to roll out of the bar or the party a little before you wanted to leave just to be able to attend my class. You might also have to give up some precious sleep. In any event, you had to give up something to attend my class. That's the opportunity cost. Remember, everything you do has a price (opportunity cost) that must be paid according to Harry Browne who wrote, How I Found Freedom in an Unfree World.) To do one thing you must give up the opportunity to do something else.

When people decide to buy a product or service they must decide if it will satisfy a need or want at a price they are willing to pay. The number one reason that people buy the products or services they do is called Personal Tastes or Preferences (Subjective valuation). Everyone has a different price they are willing to pay for the same product or service. Something is only worth what someone is willing to pay for it. That's a subjective valuation. Each of us has a different intensity of demand for the same products. Things you want I may not care for at all, and the opposite may also be true. This is why there is such a variety of goods and services offered on the market.

Subjective valuation is also fluid. As your income goes either up or down it changes your valuation of products and services. Have you ever wanted something so bad you would do almost anything to get it---an i phone or I pad?---but once you get the money you think, "do I really want this?' and you don't buy it. This is common. If it were not for a subjective valuation we would all be wearing the same style and color clothes and living in similar houses, etc. Wouldn't that be a wonderful world! I'd find the tallest building in downtown Orlando and see if I could fly! It is not the similarity in people that interests me. It's the differences. It's my desire not to be like everyone else that has driven my life. Don't strive to be someone else. Strive to find and be yourself. God save me from a terminal case of conventional wisdom!

There are 5 embedded questions.

Give me an example of subjective valuation.

salmoneel837

Suppose that, instead of taking this test, you could either have worked and earned income or partied and had a pleasurable time. Your opportunity cost of taking the test is the

	a.	forgone working or partying, depending on which was your next best choice.
	b.	forgone work.
	c.	forgone working and partying.
	d.	test because you are taking it.

1 points

QUESTION 2

A trend is

	a.	a measure of closeness on a scatter diagram.
	b.	a general tendency for a variable to rise or fall.
	c.	the maximum value of a variable.
	d.	the difference between the maximum value of a variable and the minimum value of the variable.

1 points

QUESTION 3

A time-series graph measures

	a.	time on the y-axis and the variable or variables in which we are interested on the x-axis.
	b.	time on the x-axis and the variable or variables in which we are interested on the y-axis.
	c.	the value of one variable against the value of another variable.
	d.	the value of an economic variable for different groups in a population at a point in time.

1 points

QUESTION 4

Canada has nationalized health care, so that everyone, regardless of their ability to pay, has some access to health care. Based on this observation, Canada has decided that "everyone, regardless of their ability to pay" is the answer to what microeconomic question?

	a.	Why will we offer health care?
	b.	How will health care be produced?
	c.	For whom will health care be produced?
	d.	What type of health care will be produced and in what quantity?

1 points

QUESTION 5

As a shoe factory adds more workers, shoe production grows, reaches a maximum, and then shrinks. In a diagram that has the number of workers on the horizontal axis and the number of shoes on the vertical axis, the relationship between the number of workers and the number of shoes starts as ________ and then, after the maximum point, is ________.

	a.	positive; negative
	b.	negative; positive
	c.	linear; negative
	d.	positive; linear

1 points

QUESTION 6

Microeconomics includes the study of the

	a.	choices made by individuals and businesses.
	b.	recessions and inflation in the global economy.
	c.	aggregate effects on the national economy.
	d.	reasons why the government changes interest rates.

1 points

QUESTION 7

When Fresh Express Salads decides to mechanically pick all of its lettuce, it directly answers the ________ question.

	a.	when
	b.	for whom
	c.	how
	d.	what

1 points

QUESTION 8

Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours. This argument is based on the assumption that

	a.	the opportunity cost of working is negative.
	b.	the marginal cost of each additional work hour is not important to most workers.
	c.	workers are irrational.
	d.	workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work.

1 points

QUESTION 9

A choice made by comparing all relevant alternatives systematically and incrementally is

	a.	an opportunity cost.
	b.	a benefit.
	c.	a sunk cost.
	d.	a choice on the margin.

1 points

QUESTION 10

A normative statement

i. can be tested as to whether it is true or false.

ii. is considered negative.

iii. depends on a person's values.

	a.	i, ii, and iii
	b.	iii only
	c.	i and iii
	d.	ii and iii

1 points

QUESTION 11

Normative statements

i. describe how the world is.

ii. describe how the world ought to be.

iii. depend on people's values and cannot be tested.

	a.	iii only.
	b.	i only.
	c.	ii and iii.
	d.	ii only.

1 points

QUESTION 12

In order to determine whether to major in economics, a rational individual compares the ________ of the decision.

	a.	positive benefits and normative costs
	b.	normative benefits and positive costs
	c.	marginal benefit and marginal cost
	d.	opportunity cost and the sunk cost

1 points

QUESTION 13

If x increases whenever y decreases, then x and y are

	a.	positively related.
	b.	negatively related.
	c.	not related.
	d.	related but whether positively or negatively related depends on whether the x variable or the y variable is plotted on the vertical axis.

1 points

QUESTION 14

Rational choice

	a.	is what you must give up get what you want.
	b.	is made by comparing different incentives.
	c.	making the choice.
	d.	provides the answer to only the "how" question.

1 points

QUESTION 15

Scarcity results from the fact that

	a.	choices made in self-interest rare not always in the social interest.
	b.	not all goals are desirable.
	c.	people's wants exceed the resources available to satisfy them
	d.	we cannot answer the major economic questions.

1 points

QUESTION 16

When Delta decides to quit flying to Lithuania, it directly answers the ________ question.

	a.	what
	b.	why
	c.	for whom
	d.	how

1 points

QUESTION 17

A normative statement

	a.	says what is currently believed about the way the world operates.
	b.	depends on someone's values.
	c.	cannot use the word "should."
	d.	must be tested to determine if it is correct.

1 points

QUESTION 18

Which of the following statements best describes the study of economics? Economics studies how

	a.	to organize production so that scarcity does not occur.
	b.	to create incentives so that scarcity does not exist.
	c.	firms make profits.
	d.	we make choices in the face of scarcity.

1 points

QUESTION 19

Which of the following best defines economics?

	a.	Economics teaches how to limit our wants.
	b.	Economics is concerned with prices and quantities of goods and services, both at the individual level and at the industry level.
	c.	Economics helps you earn as much money as possible.
	d.	Economics studies how to choose the best alternative when coping with scarcity.

1 points

QUESTION 20

In economics, cost is ________, and benefit is ________.

	a.	the amount of money that you pay for something; the amount of money that someone else is willing to pay you
	b.	what you are willing to pay on the margin; what the government pays you when you are unemployed or retired
	c.	what you must give up to get something; what you are willing to give up to get it
	d.	the amount of money that you pay on the margin; the amount of money that you receive on the margin

1 points

QUESTION 21

If Jessie studies economics for two hours instead of going to the movies with her friends, then

	a.	the opportunity cost of studying is the missed movie.
	b.	Jessie is ignoring a sunk cost
	c.	Jessie is not responding to any incentives.
	d.	Jesse definitely is making a rational choice.

1 points

QUESTION 22

Going skiing will cost Adam $80 a day. He also loses $40 per day in wages because he has to take time off from work. Adam still decides to go skiing.

	a.	The $80 price of skiing is a sunk cost and so did not affect Adam's decision.
	b.	He loses a total of $120 per day, so his decision is irrational.
	c.	His decision is rational if Adam's marginal benefit of spending a day skiing is greater than his marginal cost.
	d.	Adam's lost $40 per day in wages is a sunk cost and so did not affect his decision.

1 points

QUESTION 23

If a curve falls and then rises, it

	a.	has a maximum.
	b.	has a linear relationship.
	c.	has a minimum.
	d.	has a constant slope relationship.

1 points

QUESTION 24

In 2003, Michael Jordan decided to retire from professional basketball. Which of the following was an opportunity cost of his decision?

	a.	the avoidance of pain and injury from playing one more year
	b.	the time he could spend with his family while retired
	c.	the lost salary from playing one more year
	d.	the value of new employment opportunities that would await him

1 points

QUESTION 25

Which of the following statements is a normative statement?

	a.	Military spending as a percent of government spending decreased by 5 percent in the 1990s.
	b.	Every American household should have health care insurance coverage.
	c.	Welfare reform has decreased the amount the government spends on welfare.
	d.	The price of computers fell last year.

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ECON101 Midterm: Econ Midterm 1 study notes.docx

ECON101 Full Course Notes

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