ECON 2302.1003 CHAPTER 1 OVERLOOK

positive analysis

analysis concerned with what is

normative analysis

analysis concerned with what ought to be

If the marginal cost of producing a television is constant at $200, then a firm should produce this item ______________________________________.

as long as the marginal benefit it receives is just equal to or greater than $200.

Productive efficiency is achieved when firms produce goods and services __________________________.

at the lowest cost.

Equity

the fair distribution of economic benefits

Micro economics

-How households and firms make choices -how they interact in markets -how the gov't attempts to influence their choice

3 economic ideas

1. People are rational 2. people respond to economic incentives 3. optimal decisions are made at margin

Market

A group of buyers and sellers of a good or service the place by which they come together to trade.

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Which of the following is a normative economic statement? A) Global warming should be at the top of every economic agenda. B) Falling global demand for pesticides has led to decreases in the price of pesticides. C) With falling mortgage rates and falling unemployment rates, the number of new homes being built has increased. D) The state of Florida's unemployment rate dropped when several large companies relocated to the Miami area.

A) Global warming should be at the top of every economic agenda.

Which of the following statements is false? A) Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale. B) Every individual, no matter how rich or poor, is faced with making trade-offs. C) Economics is a social science that studies the trade-offs we are forced to make because of scarcity. D) Anytime you have to decide which action to take you are facing an economic trade-off.

A) Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale.

Which of the following contributed to the downfall of the Soviet Union in 1991? A) public dissatisfaction with low living standards and political repression B) producing higher-quality goods than were desired by consumers C) the lack of a strong dictator who could coordinate economic activities D) the rapidly increasing standard of living

A) public dissatisfaction with low living standards and political repression

mixed economy

An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

people respond to economic incentives

As incentives change, so do the actions that people will take

Which of the following is a positive economic statement? A) The inflation rate in the United States is too high. B) Unemployment insurance payments increase when the unemployment rate rises. C) The government should defund Obamacare. D) States should be able to enact their own marijuana legalization laws.

B) Unemployment insurance payments increase when the unemployment rate rises.

Which of the following is a macroeconomics question? A) What determines the salaries of college professors? B) What determines the minimum wage? C) What factors determine the price of Oreo cookies? D) What determines the production of video game consoles?

B) What determines the minimum wage?

The economic analysis of minimum wage involves both normative and positive analysis. Consider the following consequences of a minimum wage: a. The minimum wage law causes unemployment. b. Unemployment would be lower without a minimum wage law. c. Minimum wage laws benefit some workers and harm others. d. The minimum wage should be more than $7.25 per hour. Which of the consequences above are positive statements and which are normative statements?

B) a, b, and c are positive statements and d is a normative statement.

Which of the following is part of an economic model? A) preferences of economic agents B) assumptions C) opinions D) norms

B) assumptions

Which of the following is counted as "capital" in economics? A) the wealth people have B) the machines workers have to work with C) the money people have D) the labor force

B) the machines workers have to work with

market economy

Economic decisions are made by individuals or the open market.

Optimal decisions are made at the point where marginal benefit is maximized. True False

False

When voluntary exchange takes place, neither party usually gains from the exchange. True False

False

Which of the following is a normative economic statement?

Fashion designers should be allowed to copyright designs to promote innovation.

In a market economy, ________ interact in markets to decide the answers to the fundamental economic questions.

Households and firms.

How will the goods and services be produced?

In combinations and ways that minimize the cost per unit of output

Economic efficient outcomes are not necessarily desirable because __________________________.

Less efficient outcomes may be more fair or equitable.

_________________ involves undertaking an activity until its marginal benefit equal marginal costs.

Marginal analysis

______________ economies tend to be more efficient than ______________ economies.

Market; centrally-planned

optimal decisions are made at the margin

Most decisions in life involve doing a little more or a little less. Economists reason that the optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost—in symbols, where MB = MC.

People are rational

People use all available information to achieve their goals. -Weigh the benefits and cost of each action to make the best decision.

Economists assume that rational people ________________________________.

Respond to economic incentives.

Which of the following statements is true about revenue?

Revenue is the total amount received for selling a good or service. -Calculated by multiplying quantity by price.

Macro economics

The study of the economy as a whole, includes topics such as inflation, unemployment, and economic growth.

centrally planned economy

an economy in which the government decides how economic resources will be allocated

The study of economies arises due to ____________.

Scarcity

"The distribution of income should be determined by the government" is an example of a normative economic statement.

True

capital

What is used to make other goods or services.

allocative efficiency

Where consumer satisfaction is maximized. -production according to customer preferences. -MB=MC

revenue

a firm's revenue is the total amount received from selling a good or service.

voluntary exchange

a situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction

marginal analysis

comparing MC (marginal cost) and MB (marginal benefit)

Productive efficiency comes about because of __________________. Allocative efficiency arises due to __________________.

competition; voluntary exchange

Assumption and simplifications

every model needs them to be useful.

Testability

good models generate testable predictions, which can be verified or disproven using data

The cost incurred from the production of an additional unit of a product ____________________________

is a marginal cost of production.

In economics, the total amount received for selling a good or service is referred to as _________________.

revenue

Economist mostly perform _____________ analysis.

positive

In economics, the difference between a firm's revenues and costs is referred to as ______________.

profit.

marginal benefit

the extra benefit of producing one unit

Economic models

simplified versions of reality used to analyze real-world economic situations.

economic variables

something measurable that can have different values, such as the incomes of doctors

jargon

special words or expressions that are used by a particular profession or group and are difficult for others to understand.

marginal cost

the cost of producing one more unit of a good

profit

the difference between total revenue and total cost

Opportunity cost is defined as _________________________________________.

the highest valued alternative that must be given up to engage in an activity.

Trade-off

the idea that, because of scarcity, producing more of one good or service means producing less of another good or service

Technology

the process used to produce a good or service

Economics

the study of the choices people make to attain their goal, given their scarce resources.

opportunity cost

what you give up to get something else

productive efficiency

where a good or service is produced at the lowest possible cost