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The document serves as a study guide for an economics quiz, covering key concepts such as economics, efficiency, opportunity cost, and market versus command economies. It discusses the FDA's dilemma, the rationale behind U.S. ethanol subsidies, and the principles of protectionism and the invisible hand. Additionally, it highlights the significance of Adam Smith in economics and explains the Production Possibilities Curve (PPC) and its implications for economic growth.

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2 views

Copy of Economics Quiz 1 Study Guide

The document serves as a study guide for an economics quiz, covering key concepts such as economics, efficiency, opportunity cost, and market versus command economies. It discusses the FDA's dilemma, the rationale behind U.S. ethanol subsidies, and the principles of protectionism and the invisible hand. Additionally, it highlights the significance of Adam Smith in economics and explains the Production Possibilities Curve (PPC) and its implications for economic growth.

Uploaded by

byron.a.lathrop
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Economics Quiz 1 Study Guide

1.​ Explain the following terms: Economics, Efficiency, Opportunity Cost,


Utility, Incentive, Scarcity, Marginal Analysis.
Economics is positive (as opposed to normative) explanations of how the world
works. It’s a method of thinking. It relies on precisely defining our words.
Efficiency refers to maximizing gain with the choices we make and the resources
we have. But efficiency isn’t always helpful because decisions can have
unforeseen and unintended consequences.
Opportunity cost is the alternative that is given up.
Utility can look different to different people, because it depends on what people
want.
Economists refer to responding to incentives as “maximizing utility”
Incentives influence the choices people make. Choices are influenced by
psychology.
Scarcity means there are limited resources in the world, so people must decide
what to do with them.
Marginal Analysis refers to analyzing/looking for the consequences or side
effects of a choice to decide which choice to pick.

2.​ Explain the FDA’s dilemma.


The FDA has to decide whether they want more people to die of an unsafe drug
that got approved too soon, or for people to die because they were waiting for the
safety of a drug to be determined.

3.​ Why does the U.S. government continue to subsidize ethanol when there is
no economic benefit?
Because there are a lot of people who have jobs in ethanol production, and there
are even more people who have jobs that are merely tangentially connected to
ethanol production, whose industries would be impacted if ethanol production
were to cease. Those people want to protect their jobs.

4.​ What are the three economic questions all economic systems have to
answer?
What to produce.
How to produce.
For whom to produce.

5.​ What is a market economy? Command? What are the values of each and
what are the opportunity costs of each?
In a market economy, individuals decide the answers to all three questions. In a
command economy, central planners decide the answers to all three questions.
A market economy has more freedom, whereas a command economy has more
security. A market economy is more efficient, whereas a command economy has
more equity. A market economy has more growth, whereas a command
economy has more environmental quality.

6.​ According to the authors of “The Candlemakers Petition” and “I, Pencil” why is
a market economy best?
The creators of I, Pencil say a market economy is best because of the efficiency
and the teamwork it promotes among individuals, corporations, and even
countries. Frédéric Bastiat says a market economy is best because it promotes
competition, which leads to better, higher quality products, and lower prices.

7.​ What is “protectionism?” What are two examples of protectionist policies?


Protectionism are economic policies that protect domestic industries. Tariffs
and Subsidies.

8.​ What is the invisible hand?


The invisible hand is a term coined by Adam Smith to describe how individuals
in a free market use their talents to make and sell products. The term makes it
sound all mysterious, but Adam Smith does write about it extensively to explain
it.

9.​ Why is Adam Smith considered to be the “father of economics?” What is


comparative advantage? What role should the government play in the economy,
according to Smith?
Adam Smith is considered to be the father of economics because he wrote a
freakishly long book explaining how the world got to where it is. He explained
this in terms of trade, scarcity, and other principles that are now associated with
economics. He was the first to describe how a free market, and the people within
it, operate. He said the fact that people are motivated by greed and self-interest
in a market economy is a good thing, and leads to good things in a market
economy. He basically invented economics. Adam Smith believed that the
government should have no (or very little) role in the economy, apart from
maintaining and building public infrastructure and public institutions, because
those create jobs,

10.​Be able to draw and explain a PPF (or PPC). What causes it to shift?
A PPC is a Production Possibilities Curve. It is a type of graph with a curve with
end points on each axis. Different points of the curve depict how trade-offs affect
the number of both products a system can create, given the amount of time and
resources spent on both. A point on one axis represents 100% of a systems time
and resources spent on producing a single product. Any point on the curve
represents 100% employment of both people and resources, and is the most
efficient. A point inside the curve is not efficient, and means there is joblessness.
A point outside the curve is unattainable due to limited resources or technology.

The Curve can shift outward if more resources or better technology is available,
and represents economic growth. When this happens, a system can produce
more of both types of goods.

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