ECO 201 - Lab 1
Which of the following is not a step that economists use in developing a useful economic model? A. Revise the model if it does not explain the data well. B. Use economic data to test the hypothesis. C. Make a value judgement about the merits of the hypothesis. D. Decide on the assumptions to be used in developing the model. E. Formulate a testable hypothesis.
C. Make a value judgement about the merits of the hypothesis
To compete in the automobile market, Tesla must make many strategic decisions such as whether to introduce a new car model, how to sell and service its cars, and where to advertise. At Tesla's Fremont, California plant, managers must decide on the monthly production quantities of their S and X models. In making this decision, the managers... A. Face a trademinus−off, because producing more of one model means producing less of the other. B. Will always decide on production quantities in which revenues are maximized. C. Face no trademinus−off because the Fremont plant only produces these two models of the many Tesla models produced worldwide. D. Will choose to only produce the quantity of S and X models where marginal cost equals zero.
A. Face a trademinus−off, because producing more of one model means producing less of the other.
Define Positive Analysis
Descriptive, factual statements about the world
True or False: Economists assume that the only reason people take the actions they do is in response to economic incentives.
False
In a market system, what determines how goods and services will be produced?
Firms determine how goods and services will be produced
What type of economic analysis is concerned with the way things ought to be?
Normative 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
Why do economists use models?
To answer questions and analyze issues
How is economic data used?
To test models
True or False: The idea of people are rational assumes that consumers and firms use all available information as they act to achieve their goals.
True
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 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
What do economists mean by the term "marginal"? Economists believe that an activity should be continued up to the point where
extra or additional the marginal benefit from the activity is equal to the marginal cost.
Define Microeconomics
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
Economics is a social science because
it considers human behaviorlong dash—particularly decision-making behavior, it is based on studying the actions of individuals, and it applies the scientific method to the study of the interactions among individuals.
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
Japan has a market economy. As such, Japan's economy (relative to centrally planned economies) tends to result in
productive efficiency and allocative efficiency but not necessarily equity.
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
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.
Define Macroeconomics
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Any model is based on making assumptions because
we cannot analyze an economic issue unless we reduce its complexity and models have to be simplified to be useful.
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?