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Chapter 1 Why Economics? These slides supplement the textbook, but should not replace reading the textbook
2 Who is an economist? Persons learned in the science and practices of economics
3 What is the economic problem? Because we live in a world of scarce resources, but people have unlimited wants and needs, how do we meet their needs in this world of scarcity?
4 What assumption do we make? People behave in accordance to their own self interest
5 What is rationale self interest? People select the alternatives they expect will yield the most satisfaction and happiness
6 What is opportunity cost? That which is given up in the best alternative when a choice is made
7 How is opportunity cost estimated? Opportunity cost is subjectively estimated by the individual decision maker
8 What is the opportunity cost of a city to use local taxes to pay for a park? The best alternative foregone by not building the park
9 What is your opportunity cost of attending college? If you make $300 a week, but you expect you could make $500 without school - your opportunity cost is $200
10 What is the opportunity cost of cleaning your room? Its greater on sunny days than on rainy days
11 What is marginal analysis? You will decide to do something if your marginal benefit exceeds your marginal cost
12 What is macroeconomics? The study of the economic behavior of entire economies
13 What is microeconomics? The study of the economic behavior in particular markets, such as the market for computers
14 What is a market? A set of arrangements through which buyers and sellers carry out exchange at mutually agreeable terms
15 What is special about the market? Unless there is a market transaction we are not concerned about it in economics
16 What is a good? A tangible item that is used to satisfy wants
17 What is a service? An intangible activity that is used to satisfy wants
18 What is a free good or service? There is enough of a good or service to go around to everyone who wants it for free
19 What is a Scarce Good or Service? There is not enough of a good or service to go around to everyone who wants it for free
20 When is a good or service scarce? When the amount people desire exceeds the amount available to them at a zero price
21 What is a resource? Something that is used to produce goods and services
22 What are some examples of resources? Land Labor Capital Entrepreneurship
23 What is land? Plots of ground and other natural resources used to produce goods and services
24 What is labor? The physical and mental efforts of humans used to produce goods and services
25 What is capital? Buildings, equipment, and human skills used to produce goods and services
26 What is human capital? The skills used to work with capital
27 What does money allow you to do? Make choices
28 What is entrepreneurial ability? Managerial and organizational skills combined with the willingness to take risks
29 Entrepreneur characteristics? has a dream overcomes obstacles delayed gratification is a risk taker can duplicate himself strives to be unimportant
30 Why can the entrepreneur have more free time, make more money, and have more security than an employee? A business owner can duplicate himself
31 How can you duplicate yourself? employees rental property savings in a bank owning shares of stock
32 Why is Duplication the flip side of debt? Life is either an adding to or a taking away, growth is adding to, not growing is taking away
33 What are two basic laws of entrepreneurship? What ever you have you will be given more, and what you do not have will be taken away Whatever you give away you keep and whatever you keep you lose
34 Is economics more like history or math? It is like math, know the vocabulary, understand the concepts, and use your logical thinking
35 What is the rule of man? Events are determined by whoever is in authority
36 What is the rule of law? Events are determined by law
37 What is a democracy? The majority rules What is a danger in a democracy? The majority can take everything away from the minority
38 What is a republic? A political system based on law What is the purpose of a republic? To protect the minority from the majority
39 What is a democracy in a republic? A political system where there is a balance between a democracy and a republic
40 What is a positive economic statement? A statement that can be proved or disproved by reference to facts
41 What is a normative economic statement? A statement that represents an opinion, which cannot be proved or disproved
42 More or less government? Choices are not clear cut
43 Why did Europeans come to America in 1492? To flee the autocratic policies of government and the catholic church
44 Why was America a colony of England in the 1600s and 1700s? To enrich England in terms of gold and silver
45 What is Mercantilism? The belief that gold and silver constituted a nations wealth
46 What role did the government play under mercantilism? Government had to play a large role in economic affairs, a strong central government was supported
47 How does a country enrich itself? It encourages exports and discourages imports
48 What was the East India Company? A company which the English government gave monopoly power to buy certain raw materials from Americans at low prices
49 What is a good book on the subject? Merchant Kings: when Companies Ruled the World, 1600-1900 by Stephen R Bown
50 What else did the English government do? It forbid Americans from manufacturing, therefore forcing them to purchase goods from England
51 What were the Grenville and Townsend Acts? In the 1700s taxes were levied on colonial imports and British businesses were given preferential treatment
52 What was the colonialists main concern? Taxation without representation which was considered a violation of mans natural rights
53 What are the main ideas of the Declaration of Independence 1776? Our rights come from God and that liberty is fragile Declaration of Independence
54 What was the main idea of the Wealth of Nations by Adam Smith 1776? Everyone would benefit from less government and free trade
55 What was the Treaty of Paris in 1783? England recognized Americas sovereignty
56 According to Adam Smith, what is the invisible hand? Self interest will guide the economy to produce what we want and offer us reasonable prices
57 How can consumers buy things at reasonable prices? Competition whereby lower costs will lead to lower prices and more profit
58 Can we expect steady economic growth and prosperity? No, slumps are as much a part of events as prosperity – we should let the winners win and the losers lose
59 What role do prices play in a free market system? convey information give incentives determine the distribution of income
60 What is the biggest threat to our freedom? Centralized power
61 How does our constitution protect our freedom? It spreads the allocation of power among several agencies, it decentralizes the power base
62 What are the three branches of government? President Congress (house/senate) Supreme Court
63 What is the unofficial fourth branch of our political system? A free press
64 What causes unemployment? Excessive inventory
65 What led to the excessive inventory in the 1920s? Businessmens greed– the idea was to keep wages low and prices high
66 What led to risky investments in the 1920s? Excessive profits
67 What events in the early 30s led to the Great Depression? Smoot – Hawley Tariff Decrease in the money supply Increase in taxes
68 What was the unemployment rate in the Great Depression? It was 25 percent and lasted the whole decade of the 1930s
69 What was the role of President Franklin Roosevelt in the 1930s? His New Deal policies led to a larger role of government in economics affairs
70 What role did John Maynard Keynes play in the 1930s? His book the General Theory of Employment, Interest, and Money 1936 led to a larger role of government in economic affairs
71 What was the Depression of 1920 like? It was as severe as the Depression of the 1930s but it was very short
72 How big is our national debt? > $15 trillion >$49,000 per citizen >$136,000 per tax payer Debt Clock
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