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Study Guide for Second Chapter

by: Naomi Davis

Study Guide for Second Chapter Eco 2301

Marketplace > Texas State University > Principles of Economics > Eco 2301 > Study Guide for Second Chapter
Naomi Davis
Texas State

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This covers all the key terms and objectives
Principles of Economics
Study Guide
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This 9 page Study Guide was uploaded by Naomi Davis on Friday October 14, 2016. The Study Guide belongs to Eco 2301 at Texas State University taught by Bishop in Fall 2016. Since its upload, it has received 2 views. For similar materials see Principles of Economics in Principles of Economics at Texas State University.

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Date Created: 10/14/16
Module 2 and 3 Study Guide! Hey ya’ll! Below I have listed all of the adjectives, filled in all the page numbers on the key terms, and uploaded my notes (with the exception of the very last section on ethics because I haven’t taken that quiz or the completion quiz yet) for Module 3. To study, TAKE THE REVIEW QUIZZES! bef5-2b4b82fc14e2/page/dfccfca6-5d14-4759-9157-e06d1d2b56d5 Also, make sure you know these objectives, key terms, and review the notes! I didn’t upload links to the section videos or powerpoints because they are all found on Tracs. MODULE 2: THE ROLE AND METHOD OF ECONOMICS Economics: A Brief Introduction Chapter 1, Section 1: Economics: A Brief Introduction What is economics? What is scarcity? What are goods and services? What are the types of resources? Objectives: Match the 15 Key Economics Terms introduced in Chapter 1, Section 1 of the textbook to their definitions. Given examples of economic terms, classify them as one of the 15 Key Economic terms introduced in Chapter 1, Section 1 of the textbook. Determine why scarcity can never be eradicated. Determine the difference between goods and services. Determine the difference between tangible and intangible goods. Given examples of specific resources, differentiate between labor, land, capital, and entrepreneurship. MODULE 2: THE ROLE AND METHOD OF ECONOMICS Economic Behavior and Markets Chapter 1, Section 2: Economic Behavior How is self-interest relevant to economics? What is rational behavior? Can we predict how people will respond to changes in incentives? Chapter 1, Section 3: Markets How does a market economy allocate scarce resources? What is a market failure? What are product and factor markets? 10. What is the circular flow model? Objectives Match the Key Economics Term introduced in Chapter 1, Section 2 of the textbook to its definition. Determine whether a particular example of behavior is rational. Determine how a particular incentive in an example could affect someone’s behavior. Match the 6 Key Economics Terms introduced in Chapter 1, Section 3 of the textbook to their definitions. Given examples of at least three markets, determine how each allocates particular resources. Given examples of resource allocation, determine where free (for-profit) markets are unlikely to succeed. Differentiate between Product Markets and Factor Markets. Given examples of markets activities, determine which depict examples of market failures Chapter 1, Section 4: Economic Theory What are economic theories? Why do we need to abstract? What is a hypothesis? What are microeconomics and macroeconomics? Chapter 1, Section 5: Pitfalls to Avoid in Scientific Thinking 1. If two events usually occur together, does it mean one event caused the other to happen? 2. What is the fallacy of composition? Chapter 1, Section 6: Positive and Normative Markets 3. What is a positive statement? 4. What is a normative statement? 5. Why do economists disagree? Chapter 1, Section 7: Why Study Economics? Economics is all around us. Objectives Match the 7 Key Economics Terms introduced in Chapter 1, Section 4 of the textbook to their definitions. Given an example of a specific area of economic activity, determine whether it would be considered Macro-economic or Micro-economic. Differentiate between a theory and a hypothesis. Differentiate between examples of abstraction with or without the ceteris paribus assumption. Match the 3 Key Economics Terms introduced in Chapter 1, Section 5 of the textbook to their definitions. Given an example of a specific relationship, determine whether it is an example of causation or correlation. Given examples of an aggregation, determine whether it is an example of the fallacy of composition. Match the 2 Key Economics Terms introduced in Chapter 1, Section 6 of the textbook to their definitions. Given an example, determine whether a specific economic statement is Normative or Positive. MODULE 3: THE ECONOMIC WAY OF THINKING & MARKET ETHICS Choices, Costs, and Marginal Thinking Section 1: Choices, Costs, and Trade-Offs What do we give up when we have to choose? Why are “free” lunches not free? Section 2: Marginal Thinking 1. What do we mean by marginal thinking? 2. What is the rule of rational choice? 3. Why do we use the word “expected” with marginal benefits and costs? Objectives 4. Match the Key Economics Term introduced in Chapter 2, Section 1 of the textbook to its definition. 5. Determine which actions must be taken under specific conditions of scarcity. 6. Given a specific choice made under conditions of scarcity, determine the opportunity cost. 7. Determine how specific opportunity costs could affect choices made under conditions of scarcity. 8. Differentiate between monetary and non-monetary costs. Match the 3 Key Economics Terms introduced in Chapter 2, Section 2 of the textbook to their definitions. 10. Given sets of consumption choices, determine the marginal cost and the marginal benefit. 11. Given the marginal costs and marginal benefits of possible choices, determine which choice is rational. 12. Given examples of marginal costs and marginal benefits, determine the optimum levels of an economic activity. 13. Given examples of marginal costs and marginal benefits, determine the net benefit. MODULE 3: THE ECONOMIC WAY OF THINKING & MARKET ETHICS Specialization, Trade and Economic Systems Section 3: Specialization and Trade What is the relationship between opportunity cost and specialization? What are the advantages of specialization in production? Section 4: The Production Possibilities of an Economy 1. What is a production possibilities curve? 2. What is efficiency? 3. What is the law of increasing opportunity costs? 4. How do we show economic growth? Section 5: Economic Systems 5. What goods and services will be produced? 6. How will the goods and services be produced? 7. Who will get the goods and services? Objectives Match the 2 Key Economics Terms introduced in Chapter 2, Section 3 of the textbook to their definitions. Given specific capabilities of different people or firms, determine which person or firm would perform particular actions. Given examples of economic benefits, determine which are benefits of specialization. Given examples of economic changes, determine which might be caused by specialization. Match the 2 Key Economics Terms introduced in Chapter 2, Section 4 of the textbook to their definitions. Given examples of specific technological and resource limitations, identify the boundaries of the production possibilities curve for two specific goods. Given an example of a specific production possibilities curve, determine whether a given point is efficient, inefficient, or not attainable. Given a specific production possibilities curve, identify the changes in opportunity cost which result from the Law of Increasing Opportunity Cost. Given examples of specific goods, determine whether they are capital goods or consumer goods. Given a specific production possibilities curve and a specific technological change, determine the effect on the production possibilities curve. Given examples of changes in resource allocation, determine the effect on the production possibilities curve. Given a production possibilities curve, determine why it might be bowed out from the origin rather than a straight line. Match the 6 Key Economics Terms introduced in Chapter 2, Section 5 of the textbook to their definitions. Identify the basic three questions that must be answered by any economic system, and how they are answered by command economies, market economies and mixed economies. Given examples of a production process, determine whether is labor intensive or capital intensive. Given the name of a particular economic system, determine how specific economic decisions might be made. Identify advantages and disadvantages of command, market and mixed economies. MODULE 3: THE ECONOMIC WAY OF THINKING & MARKET ETHICS Ethics: The Golden Rules Section 1: Ethics: The Golden Rules Objectives Match the 6 Market Ethics Key Terms introduced in the Section 1: Ethics: The Golden Rules text material on TRACS to their definitions. Given specific ethical situations, determine whether a new regulation or punishment is warranted. Given specific market situations, determine the effects of specific ethical violations. MODULE 3: THE ECONOMIC WAY OF THINKING & MARKET ETHICS The Cheating Game, Corruption & Correction Section 2: The Cheating Game, Corruption & Correction Objectives • Match the 7 Market Ethics Key Terms introduced in the Section 2: The Cheating Game text material on TRACS to their definitions. • Given specific ethical situations, determine whether a new regulation or punishment is warranted. • Given specific market situations, determine the effects of specific ethical violations. • Given specific ethical situations, determine whether a new regulation or punishment is warranted. • Given specific market situations, determine the effects of specific ethical violations. ECONOMICS 2301 CHAPTER 3 KEY TERMS & DEFINITIONS CHANGE IN DEMAND: (        ) Movement of the entire demand curve; the prices of related goods, income,  number of buyers, tastes, and expectations can change the demand for a good; that is, a change in one of these  factors shifts the entire demand curve CHANGE IN QUANTITY DEMANDED: (  51      ) a change in a good’s own price leads to a change in  quantity demanded, a move along a given demand curve CHANGE IN QUANTITY SUPPLIED: (   56     ) a change in a good’s own price leads to a change in  quantity supplied, a move along a given supply curve CHANGE IN SUPPLY: (    56    ) Movement of the entire supply curve: input prices, prices of related  products, expectations, number of suppliers, technology, regulation, taxes and subsidies, and weather can  change the supply for a good; that is, a change in one of these factors shifts the entire supply curve COMPETITIVE MARKET : (   48  ) a market in which the many buyers and sellers have little market  power—each buyer’s or seller’s effect on market price is negligible COMPLEMENTS: (   52     ) an increase (decrease) in the price of one good shifts the demand curve for  another good to the left (right). Note: Remember, this complEment is spelled with an E, as in Economics, not  with an I, as in Ignorant. The compliment spelled with an I means an expression of praise. EQUILIBRIUM PRICE: (    61    ) the price at the intersection of the market supply and demand curves; at  this price, the quantity demanded equals the quantity supplied EQUILIBRIUM QUANTITY: (   61     ) the quantity at the intersection of the market supply and demand  curves; at the equilibrium quantity, the quantity demanded equals the quantity supplied INDIVIDUAL DEMAND CURVE: (   49     ) a graphical representation that shows the inverse relationship  between price and quantity demanded INDIVIDUAL DEMAND SCHEDULE: (  49      ) a schedule that shows the relationship between price and  quantity demanded. A “schedule” in this case means a table of categories and numbers. INDIVIDUAL SUPPLY CURVE: (  56      ) a graphical representation that shows the positive relationship  between the price and quantity supplied INDIVIDUAL SUPPLY SCHEDULE: (   56     ) a schedule that shows the relationship between price and  quantity supplied. A “schedule” in this case means a table of categories and numbers. INFERIOR GOOD: (    52    ) a good for which demand decreases if income increases and demand increases if income decreases LAW OF DEMAND : (   49  ) the quantity of a good or service demanded varies inversely (negatively) with  its price, ceteris paribus LAW OF SUPPLY: (   55     ) the quantity of a good or service supplied varies directly (positively) with its  price, ceteris paribus MARKET DEMAND CURVE: (     50   ) the horizontal summation of individual demand curves MARKET EQUILIBRIUM: (  61   ) the point at which the market supply and market demand curves intersect MARKET SUPPLY CURVE: (   56     ) a graphical representation of the amount of goods and services that  suppliers are willing and able to supply at various prices NORMAL GOOD: (   52     ) a good for which demand increases if income increases and demand decreases if  income decreases SHORTAGE: (   62     ) a situation in which quantity demanded exceeds quantity supplied SUBSTITUTES: (   52     ) an increase (decrease) in the price of one good causes the demand curve for another good to shift to the right (left) SURPLUS: (  62      )  a situation in which quantity supplied exceeds quantity demanded  ECONOMICS 2301 CHAPTER 4 KEY TERMS & DEFINITIONS CONSUMER SURPLUS: (___87____) the difference between the price a consumer is willing and able to pay  for an additional unit of a good and the price the consumer actually pays; for the whole market, it is the sum of  all the individual consumer surpluses DEADWEIGHT LOSS: (___91____) net loss of total surplus that results from an action that alters a market  equilibrium ELASTIC: (___71____) when the quantity demanded is greater than the percentage change in price (E  > D) INELASTIC: (___71____) when the quantity demanded is less than the percentage change in price (E  < D) MARGINAL COST (MC): (___8991____) the change in total costs resulting from a one–unit change in output PRICE CEILING: (___79____) a legally established maximum price  PRICE ELASTICITY OF DEMAND: (__70_____) the measure of the responsiveness of quantity demanded  to a change in price PRICE ELASTICITY OF SUPPLY: (__76_____) the measure of the sensitivity of the quantity supplied to  changes in price of a good  PRICE FLOOR: (___79____) a legally established minimum price  PRODUCER SURPLUS: (___88____) the difference between what a producer is paid for a good and the cost  of producing that unit of the good; for the market, it is the sum of all the individual sellers’ producer surpluses —the area above the market supply curve and below the market price  TOTAL REVENUE (TR): (___74____) the amount sellers receive for a good or service, calculated as the  product price times the quantity sold TOTAL WELFARE GAINS (__91_____) the sum of consumer and producer surpluses  UNINTENDED CONSEQUENCES (___82____) the secondary effects of an action that may occur after the  initial effects  UNIT ELASTIC DEMAND (___71____) demand with a price elasticity of 1; the percentage change in  quantity demanded is equal to the percentage change in price ECONOMICS 2301 CHAPTER 5 KEY TERMS & DEFINITIONS ADVERSE SELECTION: (___109_______) a situation in which an informed party benefits in an exchange  by taking advantage of knowing more than the other party ASYMMETRIC INFORMATION: (____109______) occurs when the available information is initially  distributed in favor of one party relative to another in an exchange  COMMON RESOURCE: (____108______) a rival good that is nonexcludable  EXTERNALITY: (____102______) a benefit or cost from consumption or production that spills over onto  those who are not consuming or producing the good FREE RIDER: (____107______) a consumer who derives benefits from something he or she has not paid for MEDIAN VOTER MODEL: (_____115_____) a model that predicts candidates will choose a position in the  middle of the distribution MORAL HAZARD: (___112_______) taking additional risks because you are insured NEGATIVE EXTERNALITY: (____102______) occurs when costs spill over to an outside party who is not  involved in producing or consuming the good POSITIVE EXTERNALITY: (___102_______) occurs when benefits spill over to an outside party who is not involved in producing or consuming the good PRIVATE GOOD: (____106______) a good that is rival in consumption and excludable PUBLIC GOOD: (___106_______) a good that is nonrival in consumption and nonexcludable  RATIONAL IGNORANCE: (____116______) lack of incentive to be informed SPECIAL–INTEREST GROUPS: (___117_______) groups with an intense interest in particular voting  issues that may be different from that of the general public WINNER’S CURSE: (___113_______) a situation that arises in certain auctions in which the winner is worse  off than the loser because of an overly optimistic value placed on the good ECONOMICS 2301 CHAPTER 6 KEY TERMS & DEFINITIONS ACCOUNTING PROFITS: (___122____) total revenues minus total explicit costs  AVERAGE FIXED COST (AFC) : (__128_____) a per–unit measure of fixed costs; fixed costs divided by  output  AVERAGE TOTAL COST (ATC) : (___128____) a per–unit cost of operation; total cost divided by output  AVERAGE VARIABLE COST (AVC) : (___128____) a per–unit measure of variable costs; variable costs  divided by output  CONSTANT RETURNS TO SCALE: (___134____) occur in an output range where LRATC does not change  as output varies  DIMINISHING MARGINAL PRODUCT: (__126_____) as a variable input increases, with other inputs  fixed, a point will be reached at which the additions to output will eventually decline  DISECONOMIES OF SCALE: (___134____) occur in an output range where LRATC rises as output expands ECONOMIC PROFITS: (___122____) total revenues minus explicit and implicit costs  ECONOMIES OF SCALE: (__134_____) occur in an output range where LRATC falls as output increases  EXPLICIT COSTS: (__122_____) the opportunity costs of production that require monetary payment  FIXED COSTS: (___128____) costs that do not vary with the level of output  IMPLICIT COSTS: (____122___) the opportunity costs of production that do not require monetary payment  LONG RUN: (__125_____) a period over which all production inputs are variable  MARGINAL COST (MC) : (___129____) the change in total costs resulting from a one–unit change in output MARGINAL PRODUCT (MP) : (__126_____) the change in total output of a good that results from a one– unit change in input  MINIMUM EFFICIENT SCALE: (__134_____) the output level where economies of scale are exhausted  and constant returns to scale begin  PRODUCTION FUNCTION: (__125_____) the relationship between the quantity of inputs and the quantity  of outputs  PROFITS: (__122_____) the difference between total revenues and total costs  SHORT RUN: (__125_____) a period too brief for some production inputs to be varied  SUNK COSTS: (__124_____) costs that have been incurred and cannot be recovered  TOTAL COST (TC) : (___128____) the sum of the firm’s total fixed costs and total variable costs  TOTAL FIXED COST (TFC) : (___128____) the sum of the firm’s fixed costs  TOTAL OUTPUT (Q) : (__125_____) the total amount of output of a good produced by the firm  TOTAL VARIABLE COST (TVC) : (_128______) the sum of the firm’s variable costs  VARIABLE COSTS: (__126_____) costs that change with the level of output ECONOMICS 2301 CHAPTER 7 KEY TERMS & DEFINITIONS ALLOCATIVE EFFICIENCY (__156_____)   where P = MC and production will be allocated to reflect  consumer preferences  AVERAGE REVENUE (AR) (__143_____)   the total revenue divided by the number of units sold  CONSTANT–COST INDUSTRY (__153_____) an industry in which input prices (and cost curves) do not  change as industry output changes  DECREASING–COST INDUSTRY (__156_____)   an industry in which input prices fall (and cost  curves fall) as industry output rises  INCREASING–COST INDUSTRY (___155____)   an industry in which input prices rise (and cost  curves rise) as industry output rises  MARGINAL REVENUE (MR) (_______)   the increase in total revenue resulting from a one–unit  increase in sales  PERFECT COMPETITION (__140_____)   a market structure characterized by many buyers and  sellers, identical (homogeneous) products, and easy market entry and exit  PRICE TAKER (P. 131/140) a perfectly competitive firm that takes the price it is given by the  intersection of the market demand and market supply curves  PRODUCTIVE EFFICIENCY (___156____) where a good or service is produced at the lowest possible  cost  PROFIT–MAXIMIZING LEVEL OF OUTPUT (__144_____) a firm should always produce at the output  level at which MR = MC  SHORT–RUN MARKET SUPPLY CURVE (___148____) the horizontal summation of the individual  firms’ supply curves in the market  SHORT–RUN SUPPLY CURVE (___148____) the portion of the MC curve above the AVC curve  TOTAL REVENUE (TR) (__142_____) the product price times the quantity sold


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