Chapter 1

market

A market is a group of buyers and sellers of a good or service and the institution of arrangement by which they come together to trade

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.

Which of the following is a normative statement?

A. A tax cut should be better for stimulating the economy than a cut in the interest rate. B. All these interest rate cuts should have helped the economy. C. The Fed should not have cut the interest rate so frequently.

Mixed economy

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.

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 how economic resources will be allocated.

Normative Analysis

Concerned with "What ought to be"

Positive Analysis

Concerned with "what is" Measures the cost and benefits of different coerces of action

Who receives goods and services depends largely on

How income is distributed

Which of the following covers the study of topics such as inflation or​ unemployment?

Macroeconomics

Rationality assumption

The assumption that people do not intentionally make decisions that would leave them worse off.

Opportunity Cost

The highest valued alternative that must be up to engage in an activity.

Which of the following is part of an economic​ model?

assumptions

Consumers, firms, and the government face the problem of scarcity

by trading off one good or service for another. Each choice made comes with an opportunity cost measured by the value of the best alternative given up.

Equity

is harder to define than​ efficiency, but it usually involves a fair distribution of economic benefits. For some​ people, equity involves a more equal distribution of economic benefits than would result from an emphasis on efficiency alone.

Economics is a social science because

it applies the scientific method to the study of the interactions among individuals. Because economics is based on studying the actions of​ individuals, it is a social science. As a social​ science, economics considers human behavior—particularly ​decision-making behavior—in every​ context, not just in the context of business.

In the United​ States, who receives the goods and services produced depends

largely on how income is distributed. Individuals with the highest income have the ability to buy the most goods and services.

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.

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?

Scarcity

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 economists calls...

Economists emphasize that consumers and firms consistently respond to economic incentives

When a consumer or a firm responds to economic​ incentives, they choose more over less. If everything else is​ equal, consumers and firms choose the option that provides the most money.​ So, ceteris paribus​, ​(everything else​ equal) people choose the option that returns the highest net monetary benefits.

When Dr. Goldfinger decides on the companies in which he will​ invest, a​ ________ issue is being addressed.

microeconomic

Economics is about

positive​ analysis, which measures the costs and benefits of different courses of action.

Economic models make behavioral assumptions about the motives of consumers and firms.

Economists assume that consumers will buy the goods and services that will maximize their​ well-being or their satisfaction.​ Similarly, economists assume that firms act to maximize their profits. These assumptions are simplifications because they do not describe the motives of every consumer and every firm.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision.

Economists reason that the optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost—in ​symbols, where MB​ = MC. Marginal analysis involves comparing marginal benefits and marginal costs.

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.

What is always usually Normative

Politics

Economic Models are

Simplified versions of reality designed to analyze "what is" to explain human decision making in any context.

Which of the following is a positive statement?

The FED has cut the key interest rate several times this year.

The common element of the​ nation's answers to those three key economic questions

The common element of the​ nation's answers to those three key economic questions has been a centralized authority​ (such as a king or​ queen, a​ dictator, or a central​ government) assuming responsibility for addressing them.

When the federal government crafts environmental policies that make it less expensive for firms to follow green​ initiatives

The economic policies are consistent with economic incentives

Microeconomics

The study of how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices

Three fundamental questions of economics concern

The three fundamental questions of economics concern the problem of how to allocate​ society's scarce​ resources: what and how many items will be​ produced, how scarce resources will be organized in the production of the​ items, and who will be able to obtain the items produced.

A hypothesis in an economic model is

a statement that may be either correct or incorrect about an economic variable. An economic variable is something measurable that can have different values. An economic hypothesis is usually about a causal relationship. Before accepting a​ hypothesis, we must test it.

bounded rationality

the hypothesis that people are nearly, but not fully, rational, so that they cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them.

Economics

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