Macroeconomics

Corps and universities are willing to pay employees to take care of themselves because a healthier workforce

-translates into lower costs, in part by reducing illness related absenteeism and premature retirements -perform more efficiently, thereby improving overall productivity in the workplace

3 Fundamental questions

1. What goods and services will be produced? 2. How will the good and services be produced? 3.Who will receive the goods and services produced?

voluntary exchange

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

How are economic resources allocated in a market economy?

By the decisions of households and firms interacting in markets.

In a market system, how does society decide what goods and services will be provided ?

Consumers, firms and the gvt determine what goods and services will be produced by the choices they make.

In a market system, how does society decide what good and services will be produced?

Consumers, firms, and the government determine what good and services will be produced by the choices they make.

In the market system, what determines how good and services will be produced?

Firms determine how good and services will be produced.

What is a correct statement about a mixed economy?

In a mixed economy, most economic decisions are made in markets but the gvt plays a significant role in the allocation of resources.

When dos productive efficiency occur?

When a good or service is produced at the lowest possible cost.

When does allocative efficiency occur?

When production is in accordance with consumer preferences.

In a market system how does society decide who will receive the goods and services produced?

Who receives the goods and services produced depends largely on how income is distributed.

productive efficiency

a situation in which a good or service is produced at the lowest possible cost.

scarcity

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

allocative efficiency

a state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.

mixed economy

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

market economy

an economy in which the decisions of households and firms interacting in markets allocate economic resources.

centrally planned economy

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

positive analysis

analysis concerned with what is

normative analysis

analysis concerned with what ought to be

Why are models based on assumptions?

because models have to be simplified to be useful

Scarcity is central to the study of economics because it implies that

every choice involves an opportunity cost.

marginal

extra, additional

Equity means that good are distributed in a way that is

fair.

market

is a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade. Examples: markets for houses, smartphones, haircuts, stocks and bonds.

economics

is the study of the choices consumers, business managers, and government officials make to attain their goals, given their scarce resources.

Efficiency means that goods are distributed in a way that....

maximizes benefits to society

A firm operating in a market economy has a strong incentive to be productively efficient and allocatively efficient because the former enables it to .... while the latter ensures t of .....

minimize production cost; ample revenues.

A makert system prevents people from getting as many goods and services as they want due to which of the following? -money -the gtv because it allocates the goods and services

money

economics is about ... analysis

positive

economic variable

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

equity

the fair distribution of economic benefits

opportunity cost

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

trade offs

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

Three key economic ideas

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

to develop a model to analyze an issue, economists generally follow these steps:

1. decide on the assumptions to use in developing the model 2.formulate a testable hypothesis 3. use economic data to test the hypothesis 4. revise the model if it fails to explain the economic data well 5. retain the revised model to help answer similar economic questions in the future

marginal analysis

analysis that involves comparing marginal benefits and marginal costs.

Economics assumes people and firms:

are rational, respond to incentives, and make decisions by comparing marginal benefits with marginal costs.

economic models

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

microeconomics

is the study of how households and firms make choices, how they interact in markets, and how the gvt. attempts to influence their choices. Issues include explaining how consumers react to changes in product prices and how firms decide what pries to charge for the products they sell. It also involves policy issues such as analyzing the most efficient way to reduce teenage smoking, analyzing the costs and benefits of approving the sale of a new prescription drug, ad analyzing the most efficient way to reduce air pollution.

Macroeconomics

is the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. Issues include explaining why economies experience periods of recession and increasing unemployment and why, over the long run, some economies have grown much faster than others. It also involves policy issues, such as whether gvt intervention can reduce the severity of recessions.