Macroeconomics Chapter 1
____________ decide(s) what goods and services will be produced.
Consumers, firms, and government
Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?
When we assume the managers at Microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.
A hypothesis in an economic model is
all of the above a. tested before it can be accepted (or not rejected). b. usually about a causal relationship. c. a statement that may be either correct or incorrect about an economic variable. d. all of the above
A market is a group of ________ of a good or service and the institution or arrangement by which they come together to trade.
buyers and sellers
Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a ________ economy in which the government decides how economic resources will be allocated. Or a society can have a _________ economy in which the decisions of households and firms interacting in markets allocate economic resources.
centrally planned; market
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
In the United States, who receives the goods and services produced depends largely on
how income is distributed
Firms choose how to produce the goods and services they sell. In many cases, firms face a trade-off between using more workers or using more machines. For example,
many times in the past several decades, firms may have chosen between a production method in the United States that uses fewer workers and more machines and a production method in China that uses more workers and fewer machines.
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals marginal cost.
A _________ economy is 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.
mixed
_________ is concerned with what is, and _________ is concerned with what ought to be. Economics is about __________, which measures the costs and benefits of different courses of action.
positive analysis; normative analysis; positive analysis
_______ occurs when a good or service is produced at the lowest possible cost. _______ occurs when production is in accordance with consumer preferences.
productive efficiency; allocative efficiency
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.
Macroeconomics is
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Trade-offs force society to make choices, particularly when answering the following three fundamental questions:
One, what goods and services will be produced? Two, how will the goods and services be produced? Three, who will receive the goods and services produced?
is the study of the choices people make to attain their goals, given their scarce resources.
Economics
Any model is based on making assumptions because
c. both a & b a. models have to be simplified to be useful. b. we cannot analyze an economic issue unless we reduce its complexity. c. both a & b
Economics is a social science because
d. all of the above a. it applies the scientific method to the study of the interactions among individuals. B. it considers human behaviorlong dash—particularly decision-making behavior. C. it is based on studying the actions of individuals. D. all of the above.
One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls
scarcity
Equity is
the fair distribution of economic benefits.
Opportunity cost is
the highest valued alternative that must be give up to engage in an activity.