4 Concepts of Subjective Value - ans1. Human needs. 2. Properties of the object that
satisfy our need. 3. Knowledge of the casual connection between 1 and 2. 4. Sufficient
command ("accessibility"). 5. Scarcity.
Available Quantities: Only 3 Mathematical Possibilities - ans1. Human needs are
greater than available quantities. 2. Not scarce, free goods..plenty of supply ("less
than"). 3. Are exactly equal to..."transition point"...non-economic good, free good, not
scarce (air).
Capitalism - ansAn economic system in which productive resources are owned privately
and goods and resources are allocated through market prices.
Changes in Supply and Demand - anshttps://www.youtube.com/watch?
v=TEsp7CzsOU0
Classical Price Theory Mistakes - ans1: Logic of an infinite regress in value; explaining
prices with prices. 2: Labor was the source of value; labor is not a source of value.
Labor Theory of Value - Value is not in past effort, value is in the mind; worth is an
appraisal. 3: Intrinsic and Objective view of value. Value is subjective. Subject attaches
value to an item. 4: The relevant quantities are wrong. Had no concepts of margins,
scarcity imposes margins.
Division of Labor - ansA method that breaks down the production of a product into a
series of specific tasks, each performed by a different worker.
Economic Theory - ansEstablishes reference points indicating to what to look for and
how economic issues are interrelated.
Economics - ansThe science of purposeful human action and the undetected
consequences of those actions.
Economics has 4 Basic Assumptions - ans1: Scarcity - Want something? Have to make
it happen. Mother nature imposes scarcity. Causes prices. Don't confuse with
shortages. 2: Only individuals choose (methodological individualism; we control the
economy, we create it). 3: Rational Choices - rationality = purpose of the actions. 4:
Unlimited Wants: Greed (greedy people live in a world of scarcity driven by choice and
the rationality of those choices.
Economizing Behavior - ansIndividuals choose the options that best advance their
personal desires and goals at the least possible cost.
Equality of Exchange - ansDifferences in value cause exchanges between individuals.
,ECON 103: Microeconomics (Rustici) Test #1
Fallacy of Composition - ansPeople who mistakenly argue that what is true for the
whole are committing this. (What is true for a single individual may not apply to the
group)
Generalized Asset - ansServes broad amount of human needs in production. *Some
assets of production can be in multiple uses at one time.
Human Resources (Capital) - ansThe productive knowledge, skill, and strength of
human beings.
Labor Wages - ansUnemployment Rate: Is the percent of the nation actively looking for
working but cannot find it. Productivity determines wages.
Law of Comparative Advantage - ansA principle that states that individuals, firms,
regions or nations can gain by specializing in the production of goods that they produce
cheaply and exchanging them for goods they cannot produce cheaply (at a high
opportunity cost).
Law of Demand - ansInverse relationship between the relative price of the good (barter
price) and the quantity demanded. Price UP, Demand DOWN - Price DOWN, Demand
UP.
Law of Supply - ansPositive relationship between relative price of the good and quantity
supplied. The law of supply is a fundamental principle of economic theory which states
that, all else equal, an increase in price results in an increase in quantity supplied. In
other words, there is a direct relationship between price and quantity: quantities respond
in the same direction as price changes.
Macroeconomics - ansFocuses on how the aggregation of individual micro-units effects
our analysis.
Marginal Decision Making - ansThe difference in the costs and benefits between
alternatives.
Marginal Utility - ansIs the additional satisfaction a consumer gains from consuming one
more unit of a good or service. Marginal utility is an important economic concept
because economists use it to determine how much of an item a consumer will buy
Marginalism - ansA theory of economics that attempts to explain the discrepancy in the
value of goods and services by reference to their secondary, or marginal, utility. The
value of the next item under your prefered choice. Where the margin cuts into your
values, that sets your price.
Market Organization - ansPrivate parties make their own plans and decisions with the
guidance of unregulated market prices.
,ECON 103: Microeconomics (Rustici) Test #1
Microeconomics - ansFocuses on the decision-making of consumers, producers, and
resource suppliers operating in a narrowly defined market, such as that for a specific
good or resource.
Natural Resources - ansLand, mineral deposits, oceans and rivers.
*Ingenuity of humans is often required to make these natural resources useful in
production.
Normative - ans"What ought to be..."; given the preferences and philosophical views of
the advocate. Can neither be confirmed nor proven false by scientific testing.
*Normative statements cannot be scientifically tested because their validity rests on
value judgements.
Opportunity Cost - ansThe highest valued alternative that is sacrificed.
Physical Resources - ansTools, machines, and buildings that enhance our ability to
produce.
Positive - ans"What is..."; Statements involve potentially verifiable or refutable
propositions. Must simply be testable. Science answers these questions; cause and
effect, but cannot answer moral questions.
Private Property Rights - ansProperty rights that are exclusively held by an owner and
protected against invasion by others.
Production Possibilities Curve - ansA curve that outlines all possible combinations of
total output that could be produced assuming: 1) A fixed amount of productive
resources, 2) A given amount of technical knowledge, 3) Full and efficient use of those
resources. The slope of the curve indicates the amount of one product that must be
given up to produce more of the other.
Property Rights - ansThe rights to use, control, and obtain the benefits from a good or
resource.
Resources - ansAre the ingredients, or inputs, that people use to produce goods and
services.
Scarcity - ansNeeds of humans served by consumer goods and the services of their
production.
Socialism - ans(1) The ownership and control of the basic means of production rest with
the state and (2) resource allocation is determined by centralized planning rather than
the market focus.
, ECON 103: Microeconomics (Rustici) Test #1
Specialized Asset - ansHave varied values due to their specialization, could be
higher/lower than generalized assets.
Spontaneous Orders - ans1: Prices System (information, in our minds), 2: Money
(medium of exchange), 3: Banks (financial intermediaries), 4: Future's Markets
(speculation, pulls you out of future contracts, speculators stabilize economic system),
5: Stock and Bond Markets (we are invested in it unknowingly, mostly in pension funds)
- Primary: public corporation's stock (NASDAQ, NYSE), Secondary - stocks work
through to the public. 6: Accounting Systems (information).
Supply and Demand Curve - ansHigher price = lower price demanded (surplus). Lower
price = higher quantity demanded (shortage). If price does not clear the market then
shortages and surpluses occur (there is an internal homeostasis to the price theory
{logic}).
Transaction Costs - ansThe costs of the time, effort, and other resources necessary to
search out, negotiate, and conclude an exchange.
Utility - ansThe benefit or satisfaction that an individual expects from the choices of a
specific alternative (highly subjective).
Value of Theory - ansTheory is an abstraction from, facts are organized by theory in a
cause and effect sequence. Our decisions make the future. Theories are based on
assumptions.
4 Concepts of Subjective Value - ans1. Human needs. 2. Properties of the object that
satisfy our need. 3. Knowledge of the casual connection between 1 and 2. 4. Sufficient
command ("accessibility"). 5. Scarcity.
Available Quantities: Only 3 Mathematical Possibilities - ans1. Human needs are
greater than available quantities. 2. Not scarce, free goods..plenty of supply ("less
than"). 3. Are exactly equal to..."transition point"...non-economic good, free good, not
scarce (air).
Capitalism - ansAn economic system in which productive resources are owned privately
and goods and resources are allocated through market prices.
Changes in Supply and Demand - anshttps://www.youtube.com/watch?
v=TEsp7CzsOU0
Classical Price Theory Mistakes - ans1: Logic of an infinite regress in value; explaining
prices with prices. 2: Labor was the source of value; labor is not a source of value.
Labor Theory of Value - Value is not in past effort, value is in the mind; worth is an
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