PSU Econ 104 Exam 1 Brown SP22 – Questions with Answers
Scarcity - -Limited quantities of resources to meet unlimited wants
-Economics - -The study of the choices people make to attain their goals, given their scarce
resources
-oppurtunity cost - -The highest-valued, next best alternative that must be sacrificed to
obtain something or satisfy a want or to engage in an activity.
-Individual Behavior - -make ourselves as best off as possible, given scarcity
-Assumptions of Individual Behavior - -1. people are rational
2. people respond to incentive
3. optimal decisions are made at the margin
-Rationality - -logic and reasoning
-Incentives - -rewards or punishments that motivate particular choices
-marginal thinking - -requires decision-makers to evaluate whether the benefit of one
more unit of something is greater than its cost
-Models - -simple representations of the real world used as the basis for predictions or
explanations
-Ceteris Paribus - -a Latin phrase that means "all other things equal"
-positive economics - -Purely descriptive statements or scientific predictions
-normative economics - -Analysis involving value judgments about economic policies;
relates to whether outcomes are good or bad. A statement of what ought to be.
-Microeconomics - -the study of decision making undertaken by individuals or households
and firms
-Macroeconomics - -The study of the behavior of the economy as a whole
-Production - -Any activity that results in the conversion of resources into products that
can be used in consumption.
-Inputs - -land, labor, physical capital, human capital
-Three Questions for an Economic System - -1. What goods and services will be produced?
, 2. How will goods and services be produced?
3. Who will receive the goods and services produced?
-market economy - -Economic decisions are made by individuals or the open market.
-centrally planned economy - -an economy in which the government decides how
economic resources will be allocated
-mixed economy - -An economy in which private enterprise exists in combination with a
considerable amount of government regulation and promotion.
-Communism - -A theory or system of social organization based on the holding of all
property in common, actual ownership being ascribed to the community as a whole or to
the state.
-Socialism - -A system in which society, usually in the form of the government, owns and
controls the means of production.
-social democracy - -The society and economy should be run democratically, they should
be dedicated to meeting the needs of the people as a whole
-Capitalism/Free Market - -an economic and political system in which a country's trade
and industry are controlled by private owners for profit, rather than by the state.
-incentives in free market - -Profit motive and people work, invent, research
-The economic result of a free market - -economic growth, technological advancements,
higher standards of living, low levels of government corruption
-private ownership - -a situation in which individuals (rather than workers, the
government, or communal groups) own the raw materials, machines, tools, labor, trucks,
buildings, and other inputs needed to produce and distribute goods and services
-Property rights - -the ability of an individual to own and exercise control over scarce
resources
-welfare programs - -The array of programs that government provides to alleviate
poverty. ex: Medicaid, SNAPP, SSI
-productive efficiency - -a good or service is produced at the lowest possible cost
-allocative efficiency - -when production is in accordance with consumer preferences
-market - -a group of buyers and sellers of a particular good or service
-product market - -market for goods and services
Scarcity - -Limited quantities of resources to meet unlimited wants
-Economics - -The study of the choices people make to attain their goals, given their scarce
resources
-oppurtunity cost - -The highest-valued, next best alternative that must be sacrificed to
obtain something or satisfy a want or to engage in an activity.
-Individual Behavior - -make ourselves as best off as possible, given scarcity
-Assumptions of Individual Behavior - -1. people are rational
2. people respond to incentive
3. optimal decisions are made at the margin
-Rationality - -logic and reasoning
-Incentives - -rewards or punishments that motivate particular choices
-marginal thinking - -requires decision-makers to evaluate whether the benefit of one
more unit of something is greater than its cost
-Models - -simple representations of the real world used as the basis for predictions or
explanations
-Ceteris Paribus - -a Latin phrase that means "all other things equal"
-positive economics - -Purely descriptive statements or scientific predictions
-normative economics - -Analysis involving value judgments about economic policies;
relates to whether outcomes are good or bad. A statement of what ought to be.
-Microeconomics - -the study of decision making undertaken by individuals or households
and firms
-Macroeconomics - -The study of the behavior of the economy as a whole
-Production - -Any activity that results in the conversion of resources into products that
can be used in consumption.
-Inputs - -land, labor, physical capital, human capital
-Three Questions for an Economic System - -1. What goods and services will be produced?
, 2. How will goods and services be produced?
3. Who will receive the goods and services produced?
-market economy - -Economic decisions are made by individuals or the open market.
-centrally planned economy - -an economy in which the government decides how
economic resources will be allocated
-mixed economy - -An economy in which private enterprise exists in combination with a
considerable amount of government regulation and promotion.
-Communism - -A theory or system of social organization based on the holding of all
property in common, actual ownership being ascribed to the community as a whole or to
the state.
-Socialism - -A system in which society, usually in the form of the government, owns and
controls the means of production.
-social democracy - -The society and economy should be run democratically, they should
be dedicated to meeting the needs of the people as a whole
-Capitalism/Free Market - -an economic and political system in which a country's trade
and industry are controlled by private owners for profit, rather than by the state.
-incentives in free market - -Profit motive and people work, invent, research
-The economic result of a free market - -economic growth, technological advancements,
higher standards of living, low levels of government corruption
-private ownership - -a situation in which individuals (rather than workers, the
government, or communal groups) own the raw materials, machines, tools, labor, trucks,
buildings, and other inputs needed to produce and distribute goods and services
-Property rights - -the ability of an individual to own and exercise control over scarce
resources
-welfare programs - -The array of programs that government provides to alleviate
poverty. ex: Medicaid, SNAPP, SSI
-productive efficiency - -a good or service is produced at the lowest possible cost
-allocative efficiency - -when production is in accordance with consumer preferences
-market - -a group of buyers and sellers of a particular good or service
-product market - -market for goods and services
