Chapter 1 Homework

Trade-offs force society to make choices, particularly when answering the following three fundamental questions:

1: What goods and services will be produced? 2: How will the goods and services be produced? 3: Who will receive the goods and services produced?

___ decides(s) what goods and services will be produced.

Consumers, firms, and government

___ is the study of the choices people make to attain their goals, given their scare resources.

Economics

Which of the following covers the study of topics such as inflation or unemployment?

Macroeconomics

Firms choose how to produce the goods and services they sell. In many cases, firms face a trade-off between using more workers or using more machines. For example,

Many times in the past several decades, firms may have chosen between a production method in the United States that uses fewer workers and more machines and a production method in China that uses more workers and fewer machines.

___ occurs when a good or service is produced at the lowest possible cost. ___ occurs when production is in accordance with consumer preferences.

Productive; Allocative

Which of the following is a macroeconomics question?

What determines the inflation rate?

Which of the following is a microeconomics question?

What factors determine the price of carrots?

Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?

When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.

Which of the following is a microeconomics question?

Will the merger of American Airlines and US Airways increase or decrease airfares?

A market is a group of ___ of a good or service and the institution or arrangement by which they come together to trade.

buyers and sellers

Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a ___ economy in which the government decides how economic resources will be allocated. Or a society can have a ___ economy in which decisions of households and firms interacting in markets allocate economic resources.

centrally planned; market

Microeconomics is

how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

In the United States, who receives the goods and services produced depends largely on ___.

how income is distributed

Economics is a social science because

it considers human behavior - particularly decision-making behavior. it is based on studying the actions of individuals. it applies the scientific method to the study of the interactions among individuals.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

marginal benefit equals marginal cost.

A ___ economy is an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

mixed

Any model is based on making assumptions because

models have to be simplified to be useful. we cannot analyze an economic issue unless we reduce its complexity.

___ is concerned with what is, and ___ is concerned with what ought to be. Economics is about ___ which measures the costs and benefits of different courses of action.

positive analysis; normative analysis; positive analysis

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls

scarcity

Equity is

the fair distribution of economic benefits.

Opportunity cost is

the highest valued alternative that must be give up to engage in an activity.

When the federal government crafts environmental policies that make it less expensive for firms to follow green incentives,

the policies are consistent with economic incentives.

Macroeconomics is

the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.

A hypothesis in an economic model is

usually about a casual relationship. tested before it can be accepted (or not rejected). a statement that may be either correct or incorrect about an economic variable.