Econ Chapter 1

The formula for a percentage change of a variable over time (or growth rate) is:

((Value2- Value1) / Value1 ) X100

The fair distribution of economic benefits

Equity.

What is an economic model?

It is a simplified version of some aspect of economic life used to analyze an economic issue.

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

Macroeconomics.

Analysis that involves comparing marginal benefits and marginal costs.

Marginal analysis.

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

Market economy.

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

Market.

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

Microeconomics

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 economy.

Analysis concerned with what ought to be.

Normative analysis.

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

Opportunity cost.

The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called

macroeconomics.

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

Economic model.

Something measurable that can have different values, such as the wages of software programmers.

Economic variable.

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

Economics

Buyers and sellers use all available information to achieve their goals.

Economists assume people are rational.

people act in response to economic incentives

Economists assume people respond to economic incentives

Analysis concerned with what is.

Positive analysis.

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

Productive efficiency.

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

Trade-off.

Every society faces economic tradeoffs. This means

Who will receive the goods and services produced?

Which of the following terms summarizes the situation in which a buyer and a seller exchange a product in a market and, as a result, both are made better off by the transaction? a. Productive efficiency b. Allocative efficiency c. Voluntary exchange d. Equity

c. Voluntary exchange

Which of the following is not among the fundamental economic questions that every society must solve? a. What goods and services will be produced? b. How will the goods and services be produced? c. What goods and services will be exchanged? d. Who will receive the goods and services produced?

c. What goods and services will be exchanged?

Characterized by extensive government decision making.

centrally planned economy

By definition, economics is the study of

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

The study of economics arises due to

Scarcity

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

Scarcity.

In the first six months of 2003, branches of Commerce Bank in New York City were robbed 14 times. The New York City Police recommended steps the bank could take to deter robberies, including the installation of plastic barriers called "bandit barriers." The police were surprised the bank did not take their advice. According to a deputy commissioner of police, "Commerce does very little of what we recommend. They've told our detectives they have no interest in ever putting in the barriers."

The banks must have weighed the cost of installing bandit barriers against the benefits and decided that they have "no interest in ever putting in the barriers".

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

Voluntary exchange.

What type of statement would "A minimum wage actually reduces employment" be considered? a. A positive statement b. A marginal statement c. A normative statement d. An irrational conclusion

a. A positive statement

What is the name given to the development of a new good or a new process for making a good? a. An invention b. An innovation c. Entrepreneurship d. Capital

a. An invention

Fill in the blank: ____________ is the study of how households and businesses make choices. a. Microeconomics b. Macroeconomics c. A market mechanism d. Marginal analysis

a. Microeconomics

What is the stock of computers, factory buildings, and machine tools used to produce goods better known as? a. Physical capital b. Technology c. Innovation d. Goods and services

a. Physical capital

Which of the following involves an estimation of the benefits and costs of a particular action? a. Positive economics b. Normative economics c. The market mechanism d. An irrational conclusion

a. Positive economics

What does an economy achieve by producing a good or service at the least possible cost? a. Productive efficiency b. Allocative efficiency c. Voluntary exchange d. Equity

a. Productive efficiency

Economists assume that individuals

are rational and respond to incentives

Ted quits his $60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision?

at least $60,000

When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of? a. Marginal analysis b. A market c. Scarcity d. Rational behavior

b. A market

What type of assessment is one where a person's values and political views form part of that assessment? a. A positive assessment b. A normative assessment c. A microeconomic assessment d. A macroeconomic assessment

b. A normative assessment

Which of the following is achieved when a good or service is produced up to the point where the marginal benefit to consumers is equal to the marginal cost of producing it? a. Productive efficiency b. Allocative efficiency c. Equality d. Equity

b. Allocative efficiency

What is the name given to the practical application of an invention? a. A model b. An innovation c. Voluntary exchange d. Capital

b. An innovation

Which of the following covers the study of topics such as inflation or unemployment? a. Microeconomics b. Macroeconomics c. Both microeconomics and macroeconomics give equal emphasis to these problems. d. None of the above

b. Macroeconomics

Which of the following is the best classification for the economies of the United States, Canada, Japan, and Western Europe? a. Market economies b. Mixed economies c. Centrally planned economies d. None of the above

b. Mixed economies

What is the purpose of an economic hypothesis? a. To establish a behavioral assumption b. To establish a causal relationship c. To make a statement based on fact d. To determine the validity of statistical analyses used in testing a model

b. To establish a causal relationship

Which of the following is an example of a positive question? a. Should the university offer free parking to students? b. Should the university provide more financial aid assistance to students? c. If the college increased tuition, will class sizes decline? d. Should the college cut tuition to stimulate enrollments?

c. If the college increased tuition, will class sizes decline?

In what type of economy does the government decide how economic resources will be allocated? a. In a market economy b. In a mixed economy c. In a centrally planned economy d. In none of the above

c. In a centrally planned economy

In Solved Problem 1-1: "Should Apple produce an additional 300,000 iPods?" which of the concepts below is most applicable in solving the problem? a. The concept of what a market is b. Rational behavior and how people respond to economic incentives c. Marginal analysis d. The concept of scarcity and tradeoffsWhich of the

c. Marginal analysis

What type of economic analysis is concerned with the way things ought to be? a. Positive analysis b. Marginal analysis c. Normative analysis d. Rational behavior

c. Normative analysis

Human capital is similar to physical capital because a. both represent the value of money as a productive resource. b. both are financed by the profits of firms. c. both are productive resources. d. both represent changes in technology.

c. both are productive resources.

Which of the following is counted as "capital" in economics? a. the wealth people have b. the money people have c. the machines workers have to work with d. the accumulated skills and training workers have

c. the machines workers have to work with

What types of economies require that we answer the questions of what, how, and for whom to produce goods and services? a. Market economies b. Centrally planned economies c. Mixed economies d. All of the above

d. All of the above

Which of the following best describes the characteristics of models used in economics? a. Models are approximations to reality that capture as many details as possible. b. Models are usually complex abstractions of reality that simulate practical problems. c. Models are demonstrations of how economic concepts and theories accurately predict real situations. d. Models are simplifications of reality that include only essential elements and exclude less relevant details.

d. Models are simplifications of reality that include only essential elements and exclude less relevant details.

Which of the following is not an essential component of an economic model? a. Assumptions b. Hypotheses c. Variables d. Normative statements

d. Normative statements

Which of the following questions can be answered using normative economic reasoning? a. If the college offers free parking, will more students drive to campus? b. If the college provided more financial aid, would more students go to college? c. If the college hires better qualified instructors, will more students attend? d. Should the college cut tuition in order to stimulate enrollments?

d. Should the college cut tuition in order to stimulate enrollments?

Fill in the blanks. In economics, as well as in life, optimal decisions are made _____________. a. once all costs have been considered b. only when all benefits have been considered c. in their totality d. at the margin

d. at the margin