Learning Chapter 1

What is the name given to the development of a new good?

Invention

Economics is the study of choice under conditions of:

Scarcity

Jim declined to take part in a health study on a free basis but changed his mind after being offered $1,000 to participate in the study. Jim's behavior best illustrates which economic principle?

People respond to economic incentives.

Which of the following is not a possible opportunity cost of attending college?

The cost of housing

Tangible products like cars and televisions are referred to as __________.

goods

Macroeconomics can be used to understand all of the topics listed below, except:

how a consumer decides between the purchase of two different cars

Economists believe that an individual or firm should continue any activity until:

marginal benefit is equal to marginal cost.

The United States economy is best classified as a

mixed economy

The resources provided by nature and used to produce goods and services are also known as:

natural resources

The principle of opportunity cost evolves from the concept of:

scarcity

In what type of economy does the government decide how economic resources will be allocated?

a centrally planned economy

Macroeconomics is concerned with all of the following except:

political party affiliation

Which of the following countries has an economy where most of the resource allocation is determined by a central planning authority?

North Korea North Korea has an economy where most of the resource allocation is determined by a central planning authority. While all countries have mixed economies to some extent, the market economies are characterized by privately owned businesses that provide goods and services. From what we know about North Korea much of the economic activity is directed by the government.

One of the first steps in deciding whether to complete your education is to:

evaluate the marginal cost and marginal benefit of that decision.

Economics:

is concerned with how people respond to incentives. Economics is concerned with how people respond to incentives. Economics is a social science that studies choices made in the face of scarcity. Economics also attempts to model how people would respond to a given set of incentives in order to encourage some type of desired outcome or discourage some type of unwanted behavior. Both of these require some type of value assessment on the part of the policymaker, employer, etc. And, while modeling economic behavior does require simplifying assumptions, most simple models do a reasonably good job of explaining economic behavior.

__________ goods and services are those bought by businesses to be used to increase efficiency or enhance production.

Capital

Economic decisions are made at every level in society. When we try to decide which production method to use among several alternatives, which of the following key economic questions are we trying to answer?

How do we produce the products? Economic decisions are made at every level in society. When we try to decide which production method to use among several alternatives, we are answering the key economic question "How do we produce the products?" There are typically multiple ways that we can combine factors of production to achieve a particular outcome. For example, you can produce electricity with solar power, hydroelectric generators, coal-fired plants and other means. The power company will answer this question given their various constraints. Two other key economic questions deal with determining what to produce and who consumes the products or services. Trade-offs exist on both the production and the consumption side since we all have scarce resources. A market economy will allow the free market to make these decisions and a central planning or command economy will make these decisions via a government agency. In both cases, the questions are answered with different levels of efficiency.

The stock of computers, factory buildings and machine tools used to produce goods is known as:

physical capital The stock of computers, factory buildings and machine tools used to produce goods is known as physical capital. Physical capital includes any goods, equipment or tools used in the production process. On the other hand, financial capital refers to stocks, bonds, money and other financial assets. Human capital refers to education, training or skill sets that a worker might possess. Production will require some input from all types of capital and technology refers to the type of production process used by the firm.

When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of?

An arrangement or institution that brings buyers and sellers of a good or service together is known as a market. Markets come in all shapes, sizes and forms. EBay, the New York Stock Exchange and the local labor market are all examples of either formal or informal markets where buyers and sellers come together to exchange goods and services. Marginal analysis and rationality are both economic assumptions we make and adhere to in the marketplace. Normative economics deals with value decisions of what we should be doing.

Which of the following is a positive economic statement?

If minimum wage rates rise, then unemployment will rise. One example of a positive economic statement is "If minimum wage rates rise, then unemployment will rise." Positive economic statements are statements of fact that imply no value judgment. Notice that the correct response merely stated what would happen if minimum wage went up and made no statement about whether that was good or bad. The other responses all imply value by using the word 'should.' If we 'should' do something we are implying that is a good outcome and something we need to pursue.