Econ 201 Exam #1 WVU

behavioral assumptions in economic models

- consumers will buy goods and services to maximize their well-being - firms act to maximize their profits

examples of microeconomics

- how consumers react to changes in product prices - how firms decide what prices to charge for the products they sell - which government policy would most efficiently reduce opioid addiction - the effect of AI on firms costs of production and on employment in some industries - the most efficient way to reduce air pollution

examples of macroeconomics

- why economies experience periods of recession and increasing unemployment - why, over the long run, some economies have grown much faster than others - what determines the inflation rate - what determines the value of the U.S. dollar in exchange for other currencies - whether government intervention can reduce the severity of recessions

the four key resources used to produce goods and services are:

1. Labor - number + quality of workers 2. Land - a general term that refers to all natural resources (clay, water, oil, etc.) 3. Capital - tools and factories 4. Entrepreneurship - abilities of those willing to take risks and develop new products

3 key economic ideas

1. people are rational 2. people respond to economic incentives 3. optimal decisions are made at the margin

In a market​ system, how does society decide who will receive the goods and services​ produced? A. Who receives the goods and services produced depends largely on how income is distributed. B. Consumers determine who receives the goods and services produced. C. Firms determine who receives the goods and services produced. D. The government determines the goods and services produced.

A.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when A. marginal benefit is greater than marginal cost. B. marginal benefit equals marginal cost. Your answer is correct. C. marginal cost is zero. D. marginal benefit is maximized.

B.

The prevalence of​ Alzheimer's dementia is very high among residents living in nursing homes. A student concludes that it is likely that living in a nursing home causes​ Alzheimer's dementia. What is the flaw in the​ student's reasoning? A. The student is drawing a false conclusion by making the mistake of omitting critical variables such as the age and gender of the residents. B. The student is drawing a false​ conclusion; he is making the error of reverse causality. C. The student has failed to take into account other causes of​ Alzheimer's disease. D. The student is using an inadequate sample size.

B.

Which of the following statements is​ correct? A. The word​ "technology" and the word​ "innovation" have the same meaning. B. An innovation is the practical application of an invention. C. An invention is the practical application of an innovation. D. The word​ "technology" and the word​ "invention" have the same meaning.

B.

In a market​ system, how does society decide what goods and services will be​ produced? A. The government decides what goods and services will be produced. B. Firms alone determine what goods and services will be produced. C. ​Consumers, firms, and the government determine what goods and services will be produced by the choices they make. D. What goods and services will be produced is determined by a vote of consumers.

C.

Why are models based on​ assumptions? A. Because models are not intended to analyze​ real-world events. B. Because models are very different from theories. C. Because models have to be simplified to be useful. D. Because models are only concerned about questions of​ equity, not question of efficiency.

C.

________ is a problem that occurs when someone concludes that a change in variable X caused a change in variable Y​ when, in​ fact, it is a change in variable Y that caused a change in variable X. A. The omitted variable B. The​ positive-to-negative relationship C. Reverse causality D. Nonlinear slope

C.

Any model is based on making assumptions because Part 2 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 nor b.

C. both A and B

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. both A and B

When the federal government crafts environmental policies that make it less expensive for firms to follow green​ initiatives, A. the policies are futile because where the environment is​ concerned, it has been repeatedly shown that firms do not respond to economic incentives. B. the policies are likely to be more successful than policies that cost firms​ more, but they do not recognize economic incentives. C. the policies are consistent with economic incentives. Your answer is correct. D. pollution is likely to increase.

C. the policies are consistent with economic incentives

The relationship between two variables is positive when​ ________, and the relationship between two variables is negative when​ ________. A. one variable decreases and the other​ increases; one variable increases and the other increases B. one variable increases and the other​ decreases; one variable decreases and the other increases C. one variable increases and the other​ increases; one variable decreases and the other decreases D. one variable increases and the other​ increases; one variable increases and the other decreases

D.

Which of the following is a correct statement about a mixed​ economy? A. In a mixed​ economy, most economic decisions are made by the government but markets plays a significant role in the allocation of resources. B. In a mixed​ economy, all economic decisions are made in markets. C. In a mixed​ economy, the government makes all economic decisions. D. In a mixed​ economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.

D.

In a market​ system, what determines how goods and services will be​ produced? A. The government determines how goods and services will be produced. B. ​Consumers, firms, and the government determine together how goods and services will be produced. C. Consumers determine how goods and services will be produced. D. Firms determine how goods and services will be produced

D. Firms determine how goods and services will be produced

A hypothesis in an economic model is A. usually about a causal relationship. B. a statement that may be either correct or incorrect about an economic variable. C. tested before it can be accepted​ (or not​ rejected). D. all of the above.

D. all of the above

Economics is a social science because A. it applies the scientific method to the study of the interactions among individuals. B. it is based on studying the actions of individuals. C. it considers human behaviorlong dash—particularly ​decision-making behavior. D. all of the above

D. all of the above

market

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

scarcity

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

voluntary exchange

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

productive efficiency

a state of the economy in which every good or service is produced at the lowest possible cost - comes from competition

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 consumers equal to the marginal cost of producing it - comes from voluntary exchange

tariff

a tax imposed by a government on imports

economics is: a. concerned with how people respond to incentives b. unconcerned with value judgements c. a natural science d. deals with assumptions and is therefore unrealistic

a. concerned with how people respond to incentives

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

positive analysis

analysis concerned with what is

normative analysis

analysis concerned with what ought to be (what you think it is)

marginal analysis

analysis that involves comparing marginal benefits and marginal costs

one of the first steps in deciding whether to complete your education is to a. consider only the easiest options at a given point in time b. evaluate the marginal cost and marginal benefit of that decision c. evaluate the total amount of your investment up to this point

b. evaluate the marginal cost and marginal benefit of that decision

economics is the study of choice under conditions of: a. supply b. scarcity c. opportunity d. abundant resources

b. scarcity

Firms choose how to produce the goods and services they sell. firms face a​ trade-off between using more workers or using more machines. A. firms may have chosen between a production method in the U.S. using fewer machines and more workers and a method in China using more machines and fewer workers. B. a local service station has to choose whether to provide car repair services using more diagnostic computers to support auto mechanics and fewer tools to support auto mechanics or more tools to support auto mechanics and fewer diagnostic computers to support auto mechanics. C. firms may have chosen between a production method in the US that uses fewer workers and more machines and a production method in China that uses more workers and fewer machines. D. studios choose whether to produce animated films using more highly skilled animators to draw by hand or fewer highly skilled animators and more​ low-skill animators.

c.

economists believe that an individual or firm should continue any activity until a. marginal benefit is less than marginal cost b. marginal benefit is greater than marginal cost c. marginal benefit is equal to marginal cost

c. marginal benefit is equal to marginal cost

the principle of opportunity cost evolves from the concept of: a. wealth b. poverty c. scarcity d. consumer spending

c. scarcity

_______ decide what goods and services will be produced

consumers, firms, and government

macroeconomics is concerned with all of the following except a. inflation rates b. unemployment rates c. standard of living d. political party affiliation

d. political party affiliation

market economies

economies where decisions about production, investment, and distribution are guided by market signals and private ownership - decentralized- decisions are made by individuals and businesses based on supply and demand

centrally planned economies

economies where the government makes all major economic decisions and controls all resources centralized: decisions are made by government planners

economists assume that the only reason people take the actions they do is in response to economic incentives

false - other reasons

in the U.S., who receives the goods and services produced depends largely on _____

how income is distributed

________ 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

rationality

rational people weigh the benefits and costs of each action, and they choose an action only if benefits outweigh costs

economic variable

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

microeconomics

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

comparative advantage

the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors

rationality assumption

the assumption that people do not intentionally make decisions that would leave them worse off

invention

the development of a new good

equity

the fair distribution of economic benefits - important tradeoff for a government is that between efficiency and equity ex- if we tax income, people might work less or open fewer businesses, but those tax receipts can fund programs to aid poor

opportunity cost

the highest-valued alternative that must be given up to engage in an activity ex- opportunity cost in columbia to produce coffee is low, in the US is high "what you lose when you choose"

trade-off

the idea that, because of scarcity, producing more of one good or service means producing less of another good or service ex- if i use land to farm wheat, than that space will not be used for other crops

natural resources

the resources provided by nature and used to produce goods and services

physical capital

the stock of computers, factory buildings and machine tools used to produce goods

economics

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

macroeconomics

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

unintended consequences

the unexpected and unplanned results of a decision or action

individuals and firms consistently respond to economic incentives

true

market economies tend to be more efficient than centrally planned economies

true

optimal decisions are made at the margins

true

optimal decision

when marginal benefit equals the marginal cost