Chapter 1: Economic Foundations and Models Quiz

​Trade-offs force society to make​ choices, particularly when answering the following three fundamental​ questions:

1. What goods and services will be​ produced? 2. How will the goods and services be​ produced? 3. Who will receive the goods and services​ produced?

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.

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.

Economics is a social science because

it considers human behavior--particularly decision-making behavior.

When we graph the relationship between two​ variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing​ so, however, can lead to incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include:

omitted variable & reverse causality.

Equity is

the fair distribution of economic benefits.

When the federal government crafts environmental policies that make it less expensive for firms to follow green​ initiatives,

the policies are consistent with economic incentives.