Economics Chapter 1 - What is Economics

Most modern economics is based on positive analysis. T or F

true

Positive statements answer questions like "What will happen if...?" T or F

true

The four elements of the economic way of thinking are use _____ to simplify the analysis, explore the relationship between two variables by _________, think at the _________, and rational people respond to __________.

use assumptions, isolating variables, margin and incentives

Entrepreneurship

The effort used to coordinate the factors of production - natural resources, labor, physical capital, and human capital - to produce and sell products.

Which of the following is the Latin expression meaning other things being held fixed?

ceteris paribus

Adam Smith suggested that people are motivated solely by self-interest. T or F

false

Normative statements answer questions like "What will happen if...? T or F

false

Some recent work by economists on the sources of growth suggests that institutions such as the ______ and ______ play key roles in economic growth.

legal system and regulatory environment

Who should pay for a new skate park? Normative or positive?

normative

The federal subsidy for hybrid cars was responsible for roughly ______ of the hybrid cars purchased in 2007.

one third

How did Hurricane Katrina affect housing prices in New Orleans and Baton Rouge? Normative or positive?

positive

Would an increase in teachers' salaries improve the average quality of teachers? Normative or positive?

positive

The economic approach to spam is to follow the lead of ______ and establish a ______ for email.

snail mail and a commercial price

What is the economist's solution to the congestion problem?

Charge a toll during rush hour.

A road map incorporates two unrealistic assumptions ___________ and ________________

the earth is flat and all roads are flat

Ceteris paribus

The Latin expression meaning that other variables are held fixed.

Labor

Human effort, including both physical and mental effort, used to produce goods and services.

Variable

A measure of something that can take on different values.

Economic model

A simplified representation of an economic environment, often employing a graph.

Marginal change

A small, one-unit change in value.

Positive analysis

Answers the question "What is?" or "What will be?"

Normative analysis

Answers the question "What ought to be?"

What are the five factors of production?

Natural resources, labor, physical capital, human capital, entrepreneurship.

Should a school district increase teachers' salaries by 20 percent? Normative or positive?

Normative

Should your city build levees strong enough to protect the city from Category Five hurricanes? Normative or positive?

Normative

Natural resources

Resources produced by nature and used to produce goods and services.

Human capital

The knowledge and skills acquired by a worker through education and experience and used to produce goods and services.

Factors of production

The resources used to produce goods and services; also known as production inputs or resources.

Scarcity

The resources we use to produce goods and services are limited.

Physical capital

The stock of equipment, machines, structures, and infrastructure that is used to produce goods.

Economics

The study of choices when there is scarcity.

Microeconomics

The study of the choices made by households, firms and government and how these choices affect the markets for goods and services.

Macroeconomics

The study of the nation's economy as a whole, focuses on the issues of inflation, unemployment and economic growth.

The three basic economic questions a society must answer are _______ products do we produce? ______ do we produce the products? _______ consumes the products?

What, how, who