ECO 1-4
In a market system, what determines how goods and services will be produced?
Firms determine how goods and services will be produced.
Which of the following is a correct statement about a mixed economy?
In a mixed economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.
trade-offs
Producing more of one good or service means producing less of another good or service.
When does productive efficiency occur?
Productive efficiency occurs when a good or service is produced at the lowest possible cost.
Trade-offs force society to make choices when answering the following three fundamental questions:
What goods and services will be produced? How will the goods and services be produced? Who will receive the goods and services produced?
The three economic questions that every society must answer are
What goods will be produced, how will they be produced, and who will receive the goods?
In a market system, how does society decide who will receive the goods and services produced?
Who receives the goods and services produced depends largely on how income is distributed.
Leonard Fleck, a philosophy professor at Michigan State University, has written, "When it comes to health care in America, we have limited resources for unlimited health care needs. We want everything contemporary medical technology can offer that will improve the length or quality of our lives as we age. But as presently healthy taxpayers, we want costs controlled." Is it necessary for all economic systems to limit services such as health care?
Yes
Productive efficiency means that
a good or service is produced at the lowest possible cost.
Scarcity
a situation in which unlimited wants exceed the limited resources available to fulfill those wants
Alberto Chong of Georgia State University and several colleagues conducted an experiment to test the efficiency of government postal services around the world. They mailed letters to nonexistent businesses in 159 countries and kept track of how many of the letters were returned. Was this test most relevant to evaluating the productive efficiency or the allocative efficiency of these postal services? This test that Albert Chong and his colleagues carried out was most relevant for evaluating the
allocative efficiency of these postal services because the test was designed to measure how often and how quickly the letters sent were returned.
Marginal analysis
analysis that involves comparing marginal benefits and marginal costs
Scarcity implies that every society and every individual face trade-offs because scarcity means that
human wants are greater than what available resources can produce.
If you were a member of the organization, what reply best represents clear economic thinking? This attitude
ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people.
marginal
"extra" or "additional"
3 important ideas
1. People are rational 2. People respond to economic incentives 3. Optimal decisions are made at the margin Economists assume that people use all available information to make decisions as they act
Which of the following statements is true?
All individuals face a scarcity of time and need to make choices how to allocate it.
When does allocative efficiency occur?
Allocative efficiency occurs when production is in accordance with consumer preferences.
In a paper written by Bentley College economists Patricia M. Flynn and Michael A. Quinn, the authors state: "We find evidence that EconomicsLOADING... is a good choice of major for those aspiring to become a CEO [chief executive officer]. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other major." A list of famous economics majors published by Marietta College includes business leaders Warren Buffet, Donald Trump, Ted Turner, and Sam Walton, as well as former presidents George H.W. Bush, Gerald Ford, and Ronald Reagan. Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in government?
Economics teaches us how to look at the tradeoffs involved in every decision.
Economists assume that the only reason people take the actions they do is in response to economic incentives.
False
Suppose Dell is currently selling 2 comma 000 comma 000 computers per year. However, managers at Dell are considering whether to increase production by 200 comma 000 computers. One manager explains that after increasing production by this amount, total profit would be $100 million. Given this information, should Dell increase production by 200 comma 000 computers?
Information about the additional revenue earned and the additional cost incurred from producing 200 comma 000 additional computers is required to answer this question.
Would McDonald's decision have to be all or nothing--either serve breakfast only up to 10:30 A.M. or serve breakfast all day?
No. McDonald's could evaluate serving items from the breakfast menu that could be cooked in better coordination with the dinner menu for a period after 10:30 A.M.
Many universities and corporations offer a health wellness program that helps their employees improve or maintain their health and get paid (a relatively small amount) for doing so. The programs vary, but typically consist of employees completing a health assessment, receiving a healthy living program, and monitoring their monthly health activities. Corporations and universities are willing to pay employees to take care of themselves because a healthier workforce
Performs more efficiently, thereby improving overall productivity in the workplace Translates into lower costs, in part by reducing illness-related absenteeism and premature retirements
A market system prevents people from getting as many goods and services as they want due to which of the following?
Their income.
Relative to a market economy, a centrally-planned economy would be expected to be
better at neither productive efficiency nor allocative efficiency because the absence of market-imposed competition negates the need of firms to satisfy consumer wants or produce using the lowest-cost methods.
voluntary exchange
both the buyer and the seller of a product are made better off by the transaction
How are economic resources allocated in a market economy?
by the decisions of households and firms interacting in markets
A news story on declining attendance at college football games noted that schools in the central time zone had particular problems with attendance at games that started at 11 a.m. The athletic director at the University of Illinois was quoted as saying, "I'm a big fan of evening games." Playing games in the late afternoon or evening, rather than in the morning, would
change the opportunity cost for students whose alternative activities vary throughout the day.
McDonald's typically serves breakfast until only 10:30 a.m. on weekdays and 11:00 a.m. on weekends. In 2015, the company began to experiment with serving breakfast all day at various locations in San Diego. Several owners of McDonald's restaurants, however, point out that offering breakfast 24 hours a day presents two logistical problems: (1) Burgers and other meats need to be cooked at a higher temperature than eggs, so it would be difficult for employees to set the grill at the right temperature for both foods; and (2) scrambled eggs require employees to continually stir, while hamburgers don't require this attention. In addition, some customers might buy the cheaper breakfast than the more expensive lunch or dinner meals From an economics perspective, to determine whether to serve breakfast all day, McDonald's should
compare the marginal revenue from serving breakfast all day with the marginal cost of serving breakfast all day.
Scarcity is central to the study of economics because it implies that
every choice involves an opportunity cost.
Allocative efficiency means that
every good or service is produced up to the point where marginal benefit is equal to marginal cost.
mixed economy
is still primarily a market economy because most economic decisions result from the interaction of buyers and sellers in markets.
The Food and Drug Administration (FDA) is part of federal government's Department of Health and Human Services. Among its other functions, the FDA evaluates the safety and effectiveness of drugs and medical devices. FDA approval had to be granted before OraSure was allowed to market its home HIV test. In a centrally planned economy, the government decides how resources will be allocated. In a market economy, the decisions of households and firms interacting in markets allocate resources. The regulation of the production and sale of drugs and medical devices in the United States is an example of how resources are allocated in a
market economy because the drug development, and the resources allocated to the development, occurs in the market.
Productive efficiency
occurs when a good or service is produced at the lowest possible cost.
Allocative efficiency
occurs when production is in accordance with consumer preferences.
When economists develop models designed to explain the choices people make, they generally assume that
people are rational.
Under the Affordable Care Act, low-income people receive subsidies to help them pay for health insurance. These subsidies decline as income increases, which may result in some low-income workers supplying fewer hours to keep their income from increasing and their subsidies from declining. This outcome is an example of which key economic idea?
people respond to economic incentives
market economy
the decisions of households and firms interacting in markets allocate economic resources.
centrally planned economy
the government decides how economic resources will be allocated.
opportunity cost
the highest-valued alternative that must be given up to engage in that activity. The concept of opportunity cost is very important in economics and applies to individuals, firms, and society as a whole.
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.
Economists reason that the optimal decision is to continue any activity up to the point
where the marginal benefit equals the marginal cost
In a market system, how does society decide what goods and services will be produced?
Consumers, firms, and the government determine what goods and services will be produced by the choices they make.
According to Forbes magazine, in 2017 Bill Gates was the world's richest person with wealth of $86 billion. Does Bill Gates face scarcity?
Yes, because even though billionaires' financial resources enable them to afford a much greater array of goods and services than those less wealthy, their financial resources are not infinite.
