Economics Chapter One Quiz

Market Failures

Three Types of _________ ________: 1. Monopolies 2. Pollution 3. Lack of Readily Available Information

ceteris paribus

To aid in our model building, economists use the ________ ________ assumption: "Holding all other things equal." That means we will hold some important variables constant.

Inflation

A general increase in prices economy-wide--it affects us all.

positive question

A question that can be answered using available information or facts.

normative question

A question that is based on societal beliefs on what should or should not take place.

ceteris paribus

Assumption used in economics (and other disciplines as well), where other relevant factors or variables are held constant.

social science

Economics is a ________ ________ that uses many facts and figures to develop and express ideas.

Money isn't economics

Economics is not just about money. Economics is about making decisions on allocating limited resources to maximize an individual or society's well-being. Money is just one source of well-being, assuming that more money makes a person happier, all else equal.

Unemployment

Everyone will experience the sensation of being out of work at least at some point in their life. This is called:

opportunity costs

For example, if a country chooses to spend more on environmental conservation, it must use resources that could be used to promote other objectives, such as education and health care. What is this an example of?

tradeoffs

For example, we all face time limitations: There are only 24 hours in a day, and some of that must be spent sleeping. The fact that we have many wants but limited resources (scarcity) means that we must make __________ in nearly everything we do.

Incentive

For example, we choose to eat every day because we face the ______ to survive, and we study and work hard because we face an ___________ to be successful in our careers.

efficiency

How well resources are used and allocated. Do people get the goods and services they want at the lowest possible resource cost? This is the chief focus of efficiency.

process

Model Building is a _________--models are created and then tested. If models fail to explain reality, new models are constructed.

Pollution

One example of a market failure is __________: Companies thrashing the environment unless they are regulated.

Scarcity

Our unlimited wants clash with limited resources, leading to _______. Everyone (rich and poor) faces ________ because, at a minimum, our time on earth is limited. Economics focuses on the allocation of scarce resources to satisfy unlimited wants.

Key Principles of Economics

Principle 1: Economics Is Concerned with Making Choices with Limited Resources. Principle 2: When Making Decisions, One Must Take Into Account Tradeoffs and Opportunity Costs Principle 3: Specialization Leads to Gains for All Involved Principle 4: People Respond to Incentives, Both Good and Bad

products and services

Private markets and the incentives they provide are the best mechanisms known today for providing _______ ____ ___________. (3 words; one is a conjunction.)

resource limitations

Scarcity refers to the fact that one must make choices given the _______ ________ she of he faces.

opportunity costs

Since there are always alternatives, one cannot avoid ______ ________.

Specialization

Suppose you and your roommate can each cook your own dinner and clean your own rooms. Alternatively, you might have your roommate clean both rooms (he's better at it than you) in exchange for you preparing dinner for two (you're a better cook). Using this arrangement, both tasks are completed in less time since each of you are specializing in the activity you're better at, plus both of you will benefit from a cleaner apartment and tastier dinner. WHAT IS THIS AN EXAMPLE OF?

Incentives

Tax Policy rests on the idea that people follow ____________.

macroeconomics

The broader issues in the economy such as inflation, unemployment, and national output of goods and services.

microeconomics

The decision making by individuals, businesses, industries, and governments.

Incentives

The factors that motivate individuals and firms to make decisions in their best interest.

equity

The fairness of various issues and policies.

equilibrium

The market forces of supply and demand generally keep the economy in ____________.

living

The natural tendency for society to respond to incentives leads individuals and firms to work hard and generate ideas that increase productivity, a measure of society's capacity to produce that determines our standard of ________.

Economics

The study of how individuals, firms, and society make decisions to allocate limited resources to many competing wants.

opportunity cost

The value of the next best alternative; what you give up to do something or purchase something.

privately provided

The vast majority of products we consume are ________ _________.

microeconomics

This branch of economics also extends to such topics as labor laws, environmental policy, and health care policy.

macroeconomics

This branch of economics focuses on the broader issues we face as a nation.

invisible hand

This phenomenon that markets promote efficiency through the incentives faced by individuals and firms is referred to as the _______ __________, a term coined by Adam Smith, long considered the father of economics.

stylized

This term means that economists boil down facts to their basic relevant elements and use assumptions to develop a simple model to analyze the issue.

predictable

When markets do fail, they tend to do so in __________ ways.

aggregate

The "a" in macroeconomics refers to __________.

individual

The "i" in microeconomics refers to __________.

Incentives

Tough admissions requirements for graduate school provide an ___________ for students to study harder in college, while lucrative commissions push car salespeople to sell even the ugliest or most unreliable car. Economics is all about how people respond to the _______ specific situations provide.

good institutions, human creativity

Two important factors influencing the wealth of nations are ______ __________ and _______ _________.

microeconomics

Which of the two branches of economics looks at how markets are structured?

Scarcity

________ is not the same thing as something being scarce.

Economics

_________ is about making choices.

Economics

_________ is one of the most popular college majors in the country.

Incentives

__________ are the factors, both good and bad, that influence how people make decisions.