Econ module 2

economists assume that individuals

are rational and respond to incentives

An item has utility for a consumer if it

generates enjoyment or satisfaction

economists assume that the goal of consumers is to

make themselves as well-off as possible

T or F: "An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement.

True

T or F: When voluntary exchange takes place, both parties gain from the exchange.

True

Which of the following are assumptions needed for simple arithmetic

-numbers exist -addition

Which of the following is a positive economic statement? -The standard of living in the United States should be higher. -If the price of iPhones falls, a larger quantity of iPhones will be purchased. -The government should revamp the health care system. -The U.S. government should not have bailed out U.S. auto manufacturers.

If the price of iPhones falls, a larger quantity of iPhones will be purchased.

Which of the following is a positive economic statement? -People should not buy SUVs. -Scarcity necessitates that people make trade-offs. -Foreign workers should not be allowed to work for lower wages than the citizens of a country. -The government should mandate electric automobiles.

Scarcity necessitates that people make trade-offs.

marginal utility is the

extra satisfaction received from consuming one more unit of a product.

Which of the following can be derived from other assumptions of economics

-scarcity -tradeoffs -opportunity costs

Which of the following can be derived from other assumptions about numbers.

-subtraction -multiplication -division

Which of the following statements is true of the scientific method? -Arguments based on a few anecdotes are mostly true. -Empirical arguments are more credible when they are based on a large data set. -When a researcher looks at a large data set, she is more likely to jump to the wrong conclusions. -The larger the size of the data set, the greater the scope of inaccuracy in an analysis.

Empirical arguments are more credible when they are based on a large data set.

T or F: Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."

False

Which of the following is a normative economic statement?

Farmers should not be allowed to grow and sell genetically-modified crops.

Which of the following is a positive economic statement?

If the price of beef falls, a larger quantity of it will be bought.

The video describes the steps in simple arithmetic as proceeding from

Numbers to cardinal numbers to addition to subtraction to multiplication to division.

Which of the following is a normative economic statement? -Rising global demand for coal has led to increases in the price of coal. -Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable. -The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation. -With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased.

Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.

Which of the following is a positive economic statement? -The government should ban the production and sale of incandescent light bulbs. -The government should revamp its immigration policies. -Raising the tax on gasoline raises the selling price of gasoline. -U.S. citizens should only buy products which are produced in the United States.

Raising the tax on gasoline raises the selling price of gasoline.

________ occurs when the direction of cause and effect is mixed up in a study.

Reverse causality

Which of the following are assumptions of economics

Scarcity

Which of the following statements is true? -Models that economists use are perfect replicas of reality. -Models help economists to explain the past, but do not help in predicting the future. -Testing with data enables economists to distinguish between good models and bad models. -The scientific method used by economists is based on idealism and not empiricism.

Testing with data enables economists to distinguish between good models and bad models.

Which of the following is a normative economic statement? -When the price of gasoline rises, transportation costs rise. -The current high price of gasoline is the result of strong worldwide demand. -When the price of gasoline rises, the quantity of gasoline purchased falls. -The price of gasoline is too high.

The price of gasoline is too high.

Which of the following is a normative economic statement? -The current low price of wheat is the result of increased worldwide supply. -When the price of wheat falls, the quantity of wheat purchased rises. -When the price of wheat falls, the cost of wheat-based products falls. -The price of wheat is too low.

The price of wheat is too low.

Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c. Firms produce more of a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives?

a, b, and c

The revenue received from the sale of ________ of a product is a marginal benefit to the firm.

an additional unit

The opportunity cost of going to an outdoor music festival is

equal to the highest value or an alternative use of the time and money spent on the festival

Economists assume that rational behavior is useful in explaining choices people make

even though people may not behave rationally all the time.

An omitted variable is a variable that:

has been left out, and if included, would explain why the variables considered in a study are correlated.

The extra cost associated with undertaking an activity is called

marginal cost

The best alternative use of a resource is referred to as its:

opportunity cost

The highest valued alternative that must be given up to engage in an activity is the definition of

opportunity cost

Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that

people are rational

Suppose the U.S. government encouraged consumers to trade in their old automobiles for more efficient, new models by paying up to $5,000 for the old automobiles. These consumers who did trade in their old automobiles to take advantage of the government offer would be exemplifying the economic idea that

people respond to economic incentives

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that

people with health insurance are more likely to be overweight than people without health insurance.

Economic models do all of the following except

portray reality in all its minute details.

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.

rationally

By definition, economics is the study of

the choice people make to attain their goals, given their scarce resources

The principle of opportunity cost is that

the economic cost of using a factor of production is the alternative use of that factor that is given up

T or F: The additional cost to a producer of hiring an additional unit of labor is called the marginal cost.

true

Economists assume that rational people do all of the following except

undertake activités that benefit others and hurt themselves