Ch. 1&2 Econ

Positive statements

attempt to describe the world as it is

Normative statements

attempt to prescribe how the world should be

Any point on a country's production possibilities frontier represents a combination of two goods that an economy

can produce using all available resources and technology

In the circular flow diagram, in the markets for

the factors of production households are sellers and firms are buyers

"The whole of science is nothing more than a refinement of everyday thinking."

Albert Einstein

Which transaction takes place in the markets for the factors of production in the circular-flow diagram

Dylan receives a salary for his work as a financial analyst for an investment firm

Factors of production

Land, labor, and capital; the three groups of resources that are used to make all goods and services

You have chosen Ireland over Spain next year. What event would make you reverse this decision?

The marginal benefit of going to Spain increases

The production Possibilities Frontier

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology ex: computers and wheat

market

a group of buyers and sellers

circular flow diagram

a model that illustrates how participants in markets are linked

Capitalism

accumulation of wealth

market economy

allocates resources through the decisions of many households and firms as they interact in markets

Most economists believe that an increase in the quantity of money results in

an increase in the demand for goods and services, lower unemployment in the short run, higher inflation in the long run.

A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies

enhance equality

Difference between equality and efficiency

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources

In the circular-flow diagram, which of the following items flows from firms to households through the markets for goods and services?

goods and services

In the markets for factors of production in the circular-flow diagram

households provide firms with labor, land and capital

The "invisible hand" refers to

how the decisions of households and firms lead to desirable market outcomes

In the circular flow diagram,

income payments flow from firms to households, and sale revenue flows from households to firms.

These are held constant when looking at an individuals demand curve

income, preferences and the availability of alternative goods

The principle that trade can make everyone better off applies to

individuals, families and countries

The business cycle is the

irregular fluctuations in economic activity

"why is unemployment higher for teenagers than for older workers?" the economist

is asked to explain the cause of an economic event

In response to the deep economic downturn in the US in 2008 and 2009, the US

reduced taxes, increased government spending, and increased the supply of money.

All economist agree that tariffs and import quotas

reduces general economic welfare

Scarcity

resources are limited

The federal reserve

sets the nation's monetary policy.

Marginal changes

small incremental adjustments to a plan of action

Incentive

something that induces a person to act the prospect of a reward or punishment

Inflation

sustained increase in the overall level of prices in the economy

Rational people

systematically and purposefully do the best they can to achieve their objectives

When computing the opportunity cost of attending a basketball game you should include

the price you pay for the ticket and the value of your time

The opportunity cost of going to college is

the value of the best opportunity a student gives up to attend college

Market economies are distinguished from other types of economies largely on the basis of

the ways in which scarce resources are allocated

The first number of any ordered pair is

the x-coordinate

In the former soviet union, producers were paid for meeting output targets, not for selling products. Under those circumstances what were the economic incentives for producers?

to produce enough to meet the output target, without regard for quality or cost

scientists

try to explain the world

policy advisors

try to improve the world

High-school athletes who skip college to become professional athletes

understand that the opportunity cost of attending college is very high

One duty of the Council of Economic Advisers is to

write the annual Economic Report of the President