ECON 201 - Chapter 1

A hypothesis in an economic model is

-usually about a causal relationship -tested before it can be accepted (or not rejected) -a statement that may be either correct or incorrect about an economic variable ALL OF THE ABOVE

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

When we graph the relationship between two​ variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing​ so, however, can lead to incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include

A. an omitted variable B. reverse causality C. both A and B D. none of the above C

Any model is based on making assumptions because

A. we cannot analyze an economic issue unless we reduce its complexity B. models have to be simplified to be useful C. both A and B D. neither A or B C

Mixed economy

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.

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

Macroeconomics

Opportunity cost is

The highest-valued alternative that must be given up to engage in an activity.

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

The policies are consistent with economic incentives

Market

a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade

Economic model

a simplified version of reality used to analyze real-world economic situations

Productive efficiency

a situation in which a good or service is produced at the lowest possible cost

Centrally planned economy

an economy in which the government decides how economic resources will be allocated

Positive analysis

analysis concerned with what is

Normative analysis

analysis concerned with what ought to be

Microeconomics is

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

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

In the diagram to the right, the curve labeled "S" is apparently BLANK, while the curve labeled "D" is apparently BLANK

nonlinear, linear

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

one, what goods and services will be produced? two, how will the goods and services be produced? three, who will receive the goods and services produced?

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

Economic variable

something measurable that can have different values, such as the number of people employed in manufacturing

Equity

the fair distribution of economic benefits

Trade-off

the idea that, because of scarcity, producing more of one good or service means producing less of another good or service

Economics

the study of the choices people make to attain their goals, given their scarce resources

Macroeconomics is

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

Allocative efficiency

A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it

In your econmics class, you scored a 69 on the first quiz, a 81 on the second quiz, and an 76 on the third quiz. Your average quiz grade is __ On the fourth quiz, you scored an 80. Did the forth quiz raise your average?

Add the first 3 numbers together and divide by 3. Add all 4 numbers together and divide by 4. Answer will be yes or no

Economics is a social science because

It is based on studying the actions of individuals. It applies the scientific method to the study of the interactions among individuals. It considers human behavior—particularly ​decision-making behavior. ALL OF THE ABOVE

Voluntary exchange

a situation that occurs in the markets when both the buyer and the seller of a product are made better off by the transaction

Market economy

an economy in which the decisions of households and firms interacting in markets allocate economic resources

Marginal analysis

analysis that involves comparing marginal benefits and marginal costs

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

The diagram to the right illustrates a common economic relationship. Economists know this relationship as marginal cost​ (MC). The diagram illustrates the relationship between the change in total cost and quantity produced. There are three lines​ (A, B, and​ C) drawn tangent to the MC curve. At line​ A, the MC curve has a​ _____ slope. Where lines B and C touch the MC​ curve, the slope is​ _____ and​ _____.

negative, positive, increasing

3 Key Economic ideas

people are rational, people respond to economic incentives, optimal decisions are made at the margin

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