ECON ?'s Ch 1

_____ is the study of the economic behavior of entire economies

Macroeconomics

_____ focuses on individual economic choices and market coordination of these choices.

Microeconomics

___________ due to the scarcity of resources

People cannot satisfy all their wants

Positive economic statements

can be proved or disproved by reference to facts

The _____ shows the flow of resources, products, income, and revenue among economic decision makers.

circular-flow model

A company is likely to _____ before launching a new product in a market.

conduct a marginal analysis

Identify the correct statement about economic choice a. The need for economic choice arises from limited human wants. b. Economic choice arises due to imperfect information in resource markets. c. Economic choice arises due to imperfect information in product markets. d. The need for economic choice arises from scarcity of resources

d

A simplification of economic reality that is used to make predictions about the real world is known as a(n)_____.

economic theory

To predict the effect of an economic event on economic choices, economic theories _____.

focus on the average behavior of people in groups

The circular-flow model shows that households demand _____ from firms through product markets.

goods and services

The circular-flow model shows that _____ supply labor, capital, natural resources, and entrepreneurial ability to resource markets.

households

Resource allocation in a market economy is determined primarily through interactions between:

households and firms

Economics is a branch of social science that studies

how people choose to allocate limited resources to satisfy their unlimited wants

_____ is a payment to resource owners for the use of their capital.

interest

An economic theory is characterized as a good theory if:

it helps in sorting and understanding information

A good is said to be scarce when

it is not freely available and its price exceeds zero

____ can be useful in analyzing how a choice affects a particular market and shapes the economic system as a whole.

marginal analysis

_____ refers to incremental, additional, or small changes in economic conditions relative to the status quo.

marginal analysis

One of the main assumptions in economics is that

people are rational

_____ equals the revenue from items sold minus the cost of the resources employed to make those items

profit

The Sanders visited a number of car showrooms in their city and read a lot of reviews in journals and online before deciding on a car. This shows that:

rational individuals may invest a lot of time and collect information before making a decision.

The economic concept of _____ is the attempt made by people to minimize the expected cost of achieving a given benefit.

rational self-interest

Rational self-interest:

results in the maximization of individual satisfaction

the economic problem of _________ arises bc human wants and desires are unlimited and the means to satisfy these wants are limited

scarcity

Rational decision makers continue to acquire information as long as

the additional benefit expected from that information exceeds the additional cost of acquiring it.

The lower the personal cost of helping others, _____.

the more help we offer

A(n) _____ is a measure, such as price or quantity, that can take on different values at different times.

variable

Which of the following are necessary to make a rational choice? a. Time and information, which are both scarce and valuable. b. Accurate prediction of the average behavior of groups and the secondary effects that may result from the choice. c. A reasonable hypothesis and simplified assumptions. d. An unlimited flow of information and stock of resources to enable individuals to make the best choice.

a

Which of the following illustrates the application of the scientific method to economics? a. An economist wonders whether unemployment tends to be higher among teenagers than more experienced workers, makes a few necessary assumptions, formulates a hypothesis, and gathers data to test the hypothesis in the model. b. A Ph.D. student in economics creates artificial data on the lumber market and then develops a model for his dissertation that seems to be consistent with the data. c. Two economists with different political alignments argue about the best way to solve the unemployment problem on a television talk show. d. Economists come to believe that some economic models are true simply because prominent leading economists say they are true.

a

Which of the following is an example of a resource market? a. A job market. b. The real estate market. c. A market for musical instruments. d. The market for action movies.

a

Which of the following is an example of entrepreneurship? a. A person's ability to organize the factors of production and manage a business enterprise. b. A person's skills and abilities that can be employed to produce valuable goods and services. c. Computers used by a company to record inventory, sales, and payroll. d. Seams of coal, geologic strata containing oil, groundwater basins, and marine fisheries.

a

Which of the following is true? a. To test a hypothesis is the last step under the scientific method of studying economic problems. b. A hypothesis is a measure, such as price or quantity, that can take on different values at different times. c. Assumption refers to a theory about how key variables relate to one another. d. To identify a question and define the relevant variables is the last step under the scientific method.

a

Identify a feature of an economic theory. a. It cannot be corroborated by facts and data. b. It does not spell out every detail and interrelation. c. It is based on unrealistic assumptions. d. It contains every minute detail of the problem under consideration.

b

Which of the following comes under the purview of microeconomics? a. A decrease in the capital account deficit of a country. b. An increase in the price of a good due to a sudden increase in its quantity demanded. c. An increase in the value of net exports of a country. d. A change in the rate of exchange of a country's currency in the foreign exchange market.

b

Which of the following is the first step in the scientific method used to study economic problems? a. Testing the validity of a hypothesis and rejecting it if its predictions are worse than the best alternative theory. b. Identifying relevant questions and defining relevant variables. c. Formulating a hypothesis. d. Making required assumptions.

b

Which of the following is true of an economic choice? a. Economic choice is based on a comparison between the total cost and the total benefit from a particular action. b. Economic choice is based on a comparison of the expected marginal benefit and the expected marginal cost of the action under consideration. c. Economic choice is based only on the cost one incurs by choosing a particular action. d. Economic choice is based only on the benefit a person receives from the action under consideration.

b

Identify a positive economic statement. a. The U.S. government should take a stand on the implementation of emission standards in order to reduce global warming. b. The government should reduce the excise duty on gasoline. c. If the price of automobiles increases, then the quantity demanded decreases. d. The government should provide employment opportunities for all the citizens under the age of 65 years.

c

Which of the following is true of resource markets? a. The government supplies resources to households in resource markets. b. Firms supply resources to households in resource markets. c. Factors of production are bought and sold in these markets. d. Goods and services are bought and sold in these markets.

c

Markets

allow buyers and sellers to interact and help allocate resources.

_____ can predict the impact of an economic event on economic choices.

an economic theory

Which of the following illustrates the ceteris paribus assumption? a. If the federal government increases government spending, and the Federal Reserve Bank lowers interest rates, we know that the increase in government spending results in a decrease in the unemployment rate. b. If a company reduces its labor costs, negotiates lower material cost from its vendors, and spends on advertising, we know that the reduced labor costs increased profits. c. If the quantity demanded of a good falls when the price of a good increases, consumer income falls, and the price of substitutes increases, we can conclude that the increase in price caused the decline in quantity demanded. d. If the price of Pepsi decreases and there are no changes in other relevant variables such as consumer income, weather conditions, etc., we know that the decrease in price increased the quantity of Pepsi demanded.

d

Which of the following is a normative economic statement? a. If the price of Pepsi increases, then the quantity demanded decreases. b. The U.S. unemployment rate is 9.7 percent. c. A ceiling on rents reduces the quantity and quality of housing available. d. The distribution of income in the United States should be more equal

d

Which of the following is an example of physical capital? a. A person's ability to organize the productive resources and manage a business enterprise. b. A person's physical and mental effort employed to produce goods and services. c. A taxi driver's knowledge of city streets. d. A computer used by a company to record its inventory, sales, and payroll.

d