Chapter 1 and 2

Economics promotes which of the following as the way to make the best decision?

Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

Which of the following is a normative economic statement?

Fashion designers should be allowed to copyright designs to promote innovation.

Which of the following is a positive economic statement?

If the price of gasoline rises, a smaller quantity of it will be bought.

What is an economic model?

It is a simplified version of some aspect of economic life used to analyze an economic issue.

"Wealth of Nations" published in 1776 was written by

John Maynard Keynes.

How are the fundamental economic decisions determined in Cuba?

The government decides because Cuba is a centrally planned economy.

Trade-offs force society to make choices when answering what three fundamental questions

What goods and services to produce; how will these goods and services be produced; and who receives them?

The Great Depression of the 1930s with a large number of workers and factories unemployed would be represented in a production possibilities frontier graph by

a point inside the frontier.

What does the term "marginal" mean in economics?

an additional or extra

Sunk costs

are costs that have already been paid and cannot be recaptured in any significant way.

. Ted quits his $60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision?

at least $60,000

Marginal utility is the

extra satisfaction received from consuming one more unit of a product.

Economics is the study of the ________ people make to attain their goals, given their ________ resources.

choices; scarce

The ________ demonstrates the roles played by households and firms in the market system.

circular flow diagram

. In a market economy, who decides what goods and services will be produced?

consumers and producers

Adam Smith introduced this idea by using the example of how the tasks of making a pin were divided in a pin factory.

division of labor

The opportunity cost of taking a semester-long economics class is

equal to the highest value of an alternative use of the time and money spent on the class.

Allocative efficiency is achieved when

firms produce the goods and services that consumers value most.

Microeconomics is the study of

how households and firms make choices.

The cost incurred from the production of an additional unit of a product

is a marginal cost to the firm.

The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called

macroeconomics.

The production possibilities frontier shows the ________ combinations of two products that may be produced in a particular time period with available resources.

maximum attainable

Economists assume that

optimal decisions are made at the margin.

Every society faces economic trade-offs. This means

producing more of one good means less of another good can be produced.

When goods and services are produced at the lowest possible cost, ________ occurs.

productive efficiency

Households ________ final goods and services in the ________ market.

purchase; goods and services

In economics, choices must be made because we live in a world of

scarcity.

When workers or firms focus on particular tasks in the overall production process for which they are well-suited, it is called

specialization

Positive statements are

statements that describe the world as it is

By definition, economics is the study of

the choices people make to attain their goals, given their scarce resources.

Who, in a command economy, decides what goods and services will be produced with the scarce resources available in that economy?

the government

Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy?

the government, consumers and producers

If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of

the law of diminishing marginal utility.

Utility is

the level of satisfaction or pleasure that people receive from their choices.

Opportunity cost is defined as

the monetary expense associated with an activity.

Scarcity refers to the situation in which

unlimited wants exceed limited resources.