What does economics study about individual choices and resources?
Choice under resource constraints and the optimal allocation of resources.
When does scarcity occur in economic study?
When people’s desires exceed what available resources can produce.
What are factors of production?
Human, natural, and manufactured resources used to produce goods and services.
What does microeconomics study?
Individual economic components and their interactions.
What does macroeconomics study?
The economy as a whole, including aggregates and state or central-bank choices.
What does opportunity cost measure when a choice is made?
The value of the best option given up.
What does a rational choice compare?
Costs and benefits.
What do marginal cost and marginal benefit measure?
The cost and benefit of increasing or abandoning a given activity level.
What does rational decision-making compare?
Marginal benefits with marginal costs.
What do economists do after observing economic phenomena?
They construct models based on hypotheses about their causes.
How do economists evaluate economic models?
By the relevance of their explanations and predictions.
What does positive economics describe and explain objectively?
The behaviour and functioning of systems.
What does normative economics evaluate as good or bad?
The consequences of behaviour.
What does efficiency mean in economics?
Achieving the greatest possible satisfaction with minimum waste, given constraints.
When do buyers buy and sellers sell in the goods market?
Buyers buy below their willingness to pay; sellers sell above their production cost.
What does the course teach about economics?
Economic fundamentals.
What does the course teach students to identify?
Which tools to use.
What does the course teach students to analyse in the business world?
Economic information.
What limits the available human workforce?
Its number and skills.
What comprises natural resources, and what limits them?
Land and raw materials, both of which are limited.
What is capital in economics?
The sum of production factors brought into play before producing a good or service.
What determines capital productivity, and what limits its stock?
Technology determines its productivity, and its stock is limited.
What is the producer’s objective and constraint?
Profit is the objective, and technology is the constraint.
What choices does a producer make?
Choices about inputs.
What is the consumer’s objective and constraint?
Utility or satisfaction is the objective, and the budget is the constraint.
What choices does a consumer make?
Choices about consumption and the amount of work.
In the Mustang example, how should the $1,000 already spent on repairs be classified?
As a sunk past expense.
In the Mustang example, what determines whether repairing the clutch is worthwhile?
The additional $600 cost and the resulting difference in sale price.
What influences economic choices, including tastes and marketing?
Incentives.
What kind of science is economics?
A social science.
What is induction in economics?
Constructing models around general hypotheses about the causes of economic phenomena, based on observation.
What do economists build and test to explain the economic world?
Economic models.
What coordinates buyers and sellers in the goods market?
Prices provide the information needed for coordination.
What drives the choices of Homo economicus?
Self-interest drives the choices of a rational individual.
What does goods-market efficiency require regarding people's attitudes and behaviour?
It does not require people to like or account for one another.
What does aggregate demand measure in an economy?
The total amount of expenditure recorded in an economy.
What does aggregate supply measure?
The total national production of goods and services.
What does macroeconomic policy balance, and how may it do so?
It balances aggregate supply and demand by favouring supply, demand, or both.
Answer 17 questions on Foundations of Economics.
1. Which combination best describes the course’s aims?
2. A student encounters economic data about a business and must decide how to examine it. Which course objective most directly supports this task?
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