Review sheet for Exam 1

Review sheet for Exam 1 - Review sheet for Exam 1 1. What...

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Review sheet for Exam 1 1. What is economics? What is the central problem of economics? Economics is the study of how society manages its scarce resources. (Land, labor, Capital, Entrepreneur) *** PART TWO?? 2. What is the difference between Microeconomics and Macroeconomics? Microeconomics is the study of how households and firms make decisions and how they interact in markets. Macroeconomics is the study of economy wide phenomena, including inflation, unemployment and economic growth. 3. What is opportunity cost? Is what you give up to get that item. It is the true cost of the item. Example: the opportunity cost of going to college would be your tuition payment AND the value of your time you could have spent working at your potential wage. (this excludes room and board and food because these are things that you would have to pay for anyway) 4. What is the PPF? What are all of the things that a PPF illustrates? Production Possibility Frontier. Shows the different combinations of output that society can produce, given the resources and technology at a point in time. Graph: 5. What is the equation of a straight line? How do we find it?
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Y=mx+b M= y2-y1 / x2-x1 Pg.43 6. What are the 7 principles of Microeconomics? (How People Make Decisions)Pg5+ 1. People Face Trade-offs Guns v. Butter (the more we spend on national defense (guns) the less we can spend on consumer goods (butter) to raise our standard of living at home.) Efficiency v. Equity fair distribution of resources. Efficiency is society getting the most it can out of its scarce reasources. Equity is the distribution of economic prosperity fairly amoung the members of society. IN other words efficiency refers to the size of the economic pie, and equity refers to how the pie is divided. 2. The Cost Of Something Is What You Give Up to Get It Opportunity Cost 3. Rational People Think At The Margin Economists assume that people are rational, and Rational People purposefully do the best that they can to achieve their goals and objectives. Rational people know that not decisions in life are rarely black and white, but rather gray. A rational decision maker takes an action if and only if the marginal benefit of the action exceeds
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This note was uploaded on 03/18/2008 for the course ECON 2005 taught by Professor Zirkle during the Fall '07 term at Virginia Tech.

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Review sheet for Exam 1 - Review sheet for Exam 1 1. What...

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