ECON 201 study guide

Opportunity cost is

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

Every society faces​ trade-offs because we live in a world of scarcity. Suppose a​ student-athlete has the opportunity to earn ​$800,000 next year playing for a minor league baseball​ team, ​$700,000 next year playing for a European professional football​ team, or​ $0 returning to college for another year. The opportunity cost of the​ student-athlete returning to college next year is ​

$800,000

An opinion columnist in the Washington Post argues that the Stop Bad Employers by Zeroing Out Subsidies Act is​ "virtually guaranteed to hurt the very​ low-income working families its sponsors want to​ help." ​Source: Catherine​ Rampell, "Tax Bezos. Help Workers. But Not Like​ This." Washington Post​, September​ 6, 2018. A) What was the main provision of this​ act? B) Why would the columnist argue that the act was more likely to hurt than help​ low-income families? C) If the columnist is​ correct, why did the sponsors of the act in Congress write the act the way that they​ did?

A) Firms whose employees received assistance from government​ benefits, including Medicaid and the Supplemental Nutrition Assistance Program​ (SNAP), would be required to pay a tax equal to cost of the assistance. B) Firms that might otherwise have hired a​ low-wage worker may now be reluctant to do so because the firms could be liable for paying the tax. C) The sponsors of the legislation may have hoped that firms would raise the wages of​ low-income workers, which would make it unnecessary for these workers to apply for government benefits.

A) Productive efficiency means that B) Allocative efficiency means that

A) a good or service is produced at the lowest possible cost. B) every good or service is produced up to the point where marginal benefit is equal to marginal cost

A) What do economists mean by the word​ "marginal"? B) Economists believe that an activity should be continued up to the point where

A) extra or additional B) the marginal benefit from the activity is equal to the marginal cost.

A) College football​ attendance, especially student​ attendance, has been on the decline. In​ 2017, home attendance at major college football games declined for the seventh consecutive year and was the lowest since 2000. The opportunity cost of engaging in an activity is the value of the best alternative that must be given up in order to engage in that activity. ​Source: Dennis​ Dodd, "College Football Heads in Wrong Direction with Largest Attendance Drop in 34​ Years," cbssports.com, February​ 13, 2018. Your opportunity cost of attending a game compared with the opportunity cost facing a college student 17 years ago is B) Can this change in opportunity cost account for the decline in college football​ attendance? Briefly explain.

A)​higher, because more games are televised today. B) Yes, because these changes increase the opportunity cost of watching football games in person.

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 the decisions of households and firms interacting in markets allocate economic resources.

Centrally planned Market

Consider the following​ statement: ​ "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes​ mistakes." What is the most correct response to this​ statement?

Economics assumes that consumers and firms are​ rational, not that they always make the right decisions.

Which of the following is a correct statement about a mixed​ economy?

In a mixed​ economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.

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.

Relative to a market​ economy, a​ centrally-planned economy would be expected to be

better at neither productive efficiency nor allocative efficiency because the absence of​ market-imposed competition negates the need of firms to satisfy consumer wants or produce using the​ lowest-cost methods.

Microeconomics is the study of

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

Consider an organization dedicated to helping​ low-income people. The members of the organization are discussing alternative methods of aiding the​ poor, when a proponent of one particular method​ asserts: ​"If even one poor person is helped with this​ method, then all our time and money would have been worth​ it." If you were a member of the​ organization, what reply best represents clear economic​ thinking? This attitude

ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people.

Economics is a social science because

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

_____ 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.

Macroeconomics is

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

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals.

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?