STUDY GUIDE EXAM 1

STUDY GUIDE EXAM 1 - STUDY GUIDE for FIRST EXAM ECO2013-01...

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STUDY GUIDE for FIRST EXAM ECO2013-01 – SPRING, 2008  Martha Evans, Instructor Note:   This study guide is intended to be used as a tool to help you prepare for the test.  It is an outline representing the topics that have been emphasized in lecture, the book,  and the slides for each section/chapter.   It is NOT an  exact  representation of the way  that questions will be phrased on the test.     CHAPTER 1:  THE ECONOMIC APPROACH 1.     What   is   the   important   “driver”   of   human   behavior ,   that   has   resulted   in  competition, as well as determined cultural and even  religious traditions across  time? 2.       How are poverty and scarcity different ?  Can they both be eliminated? 3.     How were scarce goods rationed  in “primitive” societies?  How are they rationed  in “modern” market economies?  Which rationing method is superior, and why?    4.     Eight Guideposts to Economic Thinking:   i. The use of scarce resources to produce a good is always costly This statement is usually associated with the saying “There’s no such  thing as a “free lunch”.   Why does obtaining more of a scarce good ALWAYS involve a cost?  (Hint:  Think  implicit  costs – what does that mean??) ii. Individuals   choose   purposefully;   therefore   they   will   economize:  What is meant by “economizing”?    iii. Incentives matter:   How do “rational” people respond to changes in costs  relative to the benefits of their choices?   iv. Economic reasoning focuses on the impact of   marginal   changes:  What does the term marginal mean?  How is a marginal cost different from an average cost? 1
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v.    Since   information   is   scarce,   uncertainty   is   a   fact   of   life:     Is   it  reasonable   for   people   to   exhaust   all   possible   sources   of   information  before making decisions?  Why or why not? vi. In addition to their initial impact, economic events often generate  secondary effects   that may be felt only with the passage of time:  What do we mean by secondary effects.  (Hint:    I used increases in the  minimum wage as an example of a decision that could have secondary  effects.) vii. The   value   of   a   good   is   subjective   and   varies   with   individual  preferences:    I used the term “utility” in association with this statement.  What does this have to do with the creation of real economic value?    4.     Eight Guideposts to Economic Thinking, (cont’d.): viii. The test of an economic theory is its ability to predict and explain  events in the real world:    I emphasized that the reason all of these 
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STUDY GUIDE EXAM 1 - STUDY GUIDE for FIRST EXAM ECO2013-01...

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