econ 202 chapter 1

equity (economic equality)

- fairness -normative -depends on your values -has to do with your values

Which of the following are assumptions of economics a. Scarcity. b. Tradeoffs. c. Opportunity costs. d. All of the above. e. A and B above.

a. scarcity

Economics

is the study of social arrangement use to address this scarcity

Economics is the study of

scarcity

positive (efficiency)

shouldn't be caused for argument because they're just facts

wealth of nations

- Adam Smith - competitive market provides best answers to resource allocation questions - markets = powerful and efficient method for allocating system

efficiency

- has a strict definiton - can't make someone better off without making someone worse off positive (quantifiable - describing if a system/economy is doing most it can do)

Who gets it?

- it= the things made - all economies must distribute the things to final consumers - who should get the goods

opportunity cost

-give up to get something -value of opportunity that you can no longer take up because of the choice you made - able to make good decisions for trade offs

what to produce?

-includes the amount that we produce -produce with time, effort, and other resources

economy

-is part of a society - is the sum of billions of people making decisions considering trade-offs, driven by self-interests and responding to incentuves

utility

-measures of satisfaction and well being -some cost money and some don't - all have opp cost -trade offs (choosing one over another) -used as a guiding principle

positive

-objective statements about the world -what is -statements we can test (prove or disprove using data) -descriptive/describe the world

rational

-optimize over their choices -rational (people doing systematically the best they can do to achieve their objectives and their opportunities (they're optimizing, they use available info to achieve their goals)

How to produce ?

-the things we produce -all economies must determine how things get made -do this thru private choices

normative

-what should be -what people ought to do - others would consume less and favor to reduce it (opinion) -prescriptive

arrangements called systems (institutions) to deal with scarcity

1. market 2. government 3. charities

markets in 2 different ways

1. scientific prediction - scientific statements can be tested by - data 2. smith states the outcomes are efficient - put differently under certain condition those outcomes meaning the amount of services/good are the best amount of that service/good

When trying to assess your economic well-being you should...

Compare your situation to that of most people alive today

In which of the following ways did the video not indicate you were rich compared to King George?

Power

market trade

expands scope of trade and specialization, have something all sellers accept and all buyers want to sell. Exists way back

Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is." true or false

false

marginal benefit

if marginal benefit is greater than marginal cost = do it

people respond to

incentives (customer service for example)

gains from trade

increase the universe of goods and services that we can consume

institutions

market type of institution

margin (marginal)

means an additional unit (choices you make should be considered at the margin)

society

more complex, they developed rules (regulations) and customs when governed how

trade and markets

one-on-one trade; trade something with someone else, limited trade, specialization, some people better at certain tasks,c compare to advantage, trade improves performance

People do not "feel" rich because

people always want more

key to efficiency

people investing their own money

economics teaches us that

people want more goods

marginal cost

price (what you could do with money or time)

"An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement. true or false

true

Marginal benefit refers to the additional benefit that your activity provides to you. true or false

true

The additional cost to a producer of hiring an additional unit of labor is called the marginal cost. true or false

true

When voluntary exchange takes place, both parties gain from the exchange. true or false

true

invisible hand theorem

Smith says that the market outcome will be efficient, no central planning, people run around doing what they want, transactions governed by a market and typically efficient.

scarcity

Wanting more and finite resources.

scarcity means that

We must find ways to deal with that scarcity, we must make choices and give up things we really want, figure out the best set of social systems to address scarcity.

are you rich?

YES. People are rich. Economic goods you consume are far greater than King George III. Travel, indoor plumbing, central heating, medical care, and phone. Rich because able to purchase and consume important things in life.

When people invest in a business, those investments a. Are efficient if the government backs the investment. b. Are efficient if they prove to be successful. c. Are efficient if they are investing their own money. d. Are often inefficient because they don't work out. e. B and C above.

c. are efficient because they are investing their own money

If you have a competitive equilibrium for a two market economy consisting of tacos and enchiladas then a. The market equilibrium quantity of tacos is efficient. b. The market equilibrium quantity of enchiladas is efficient. c. The sellers of tacos have higher costs than other potential sellers. d. All of the above. e. A and B above.

e. A and B above

3 basic questions in an economy

1. what to produce 2. how to produce it 3. who gets it

barter

2 people trade with each other

how do these various ways of running an economy work and practice?

2 steps. 1. figure out how each system will assist each 3 questions. 2. what is best (what it should be doing)

central control of economies a. Emerged with governments. b. Emerged with the rise of agricultural methods. c. Emerged when early civilizations came into existence. d. Was absent when society consisted of just prehistoric clans. e. None of the above.

E. none of the above

Which of the following is a normative economic statement? a. Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable. b. The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation. c. With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased. d. Rising global demand for coal has led to increases in the price of coal.

a. Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.

Adam Smith's Invisible Hand Theorem indicates that competitive markets are efficient because: a. Competitive markets ensure efficient amounts of each good, produce that good at least cost, and allocate the good among consumers in the best way possible. b. Competitive markets ensure efficient amounts of each good, produce that good at least cost and use a free market to get that solution. c. Competitive markets allocate goods to consumers in the best possible way, ensure least cost production, and use prices to generate the equilibrium. d. Competitive markets ensure production by the least cost sellers, and are generally better than government.

a. competitive markets ensure efficient amounts of each good, produce that good at least cost, and allocate the good among consumers in the best way possible

The steps needed to evaluate the best way to organize an economy include: a. Determining what will be produced, how it will be produced and who gets it, and then evaluating these outcomes. b. Determining whether an economy provides free choice, and an appropriate role for government. c. Determining what will be produced, how it will be produced and who gets it, and then limiting the role of government. d. Limiting central power and making the maximum use of markets. e. C and D above.

a. determining what will be produced, how it will be produced and who gets it, and then evaluating these outcomes

Marginal utility is the a. extra satisfaction received from consuming one more unit of a product. b. average satisfaction received from consuming a product. c, satisfaction achieved when a consumer has had enough of a product. d. total satisfaction received from consuming a given number of units of a product.

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

When buyers and sellers operate in a competitive market, they are a. Following their own self-interest, doing whatever serves them best. b. Following their own self-interest, but wanting the economy to operate efficiently. c. Trying to ensure that markets work. d. Trying to take advantage of the other person. e. A and C above.

a. following their own self-interest, doing whatever serves them best

Which of the following is a positive economic statement? a. If the price of iPhones falls, a larger quantity of iPhones will be purchased. b. The standard of living in the United States should be higher. c. The government should revamp the health care system. d. The U.S. government should not have bailed out U.S. auto manufacturers.

a. if the price of iPhones fall, a larger quantity of iPhones will be purchased

The highest valued alternative that must be given up to engage in an activity is the definition of a. opportunity cost. b. marginal cost. c. economic equity. d. marginal benefit.

a. opportunity cost

Which of the following is a positive economic statement? a. The government should implement a national consumption tax. b. If the price of beef falls, a larger quantity of it will be bought. c. The U.S. government should increase regulations on the banking industry. d. The standard of living in the United States is too low.

b. of the price of beef falls, a larger quantity of it will be bought

Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that a. people are rational. b. people respond to economic incentives. c. optimal decisions are made at the margin. d. equity is more important than efficiency.

a. people are rational

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits. a. rationally b. emotionally c. equitably d. selfishly

a. rationally

Which of the following is a normative economic statement? a. The price of gasoline is too high. b. When the price of gasoline rises, the quantity of gasoline purchased falls. c. The current high price of gasoline is the result of strong worldwide demand. d. When the price of gasoline rises, transportation costs rise.

a. the price of gasoline is too high

Economists assume that rational people do all of the following except a. undertake activities that benefit others and hurt themselves. b. use all available information as they act to achieve their goals. c. weigh the benefits and costs of all possible alternative actions. d. respond to economic incentives.

a. undertake activités that benefit others and hurt themselves

arrangements

are methods to organize economic activity and deal with scarcity, a part of economics

Economists assume that rational behavior is useful in explaining choices people make a. even though people rarely, if ever, behave in a rational manner. b. even though people may not behave rationally all the time. c. because irrational people do not make economic choices. d. because individuals act rationally all the time in all circumstances.

b. even though people may not behave rationally all the time

An item has utility for a consumer if it a. is scarce. b. generates enjoyment or satisfaction. c. has a high price. d. is something everyone else wants.

b. generates enjoyment or satisfaction

In economics, the term ________ means "additional" or "extra." a. allocative b. marginal c. optimal d. equity

b. marginal

A restaurant sells a large soft drink at a fixed price of $1.79. A term used by economists to describe the money received from the sale of an additional large soft drink is a. pure profit. b. marginal revenue. c. gross earnings. d. net benefit.

b. marginal revenue

Economists assume that individuals a. prefer to live in a society that values fairness above all else. b. behave in unpredictable ways. c. will never take actions to help others. d. are rational and respond to incentives.

d. are rational and respond to incentives

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that a. there is no correlation between having health insurance and being overweight. b. people with health insurance are more likely to be overweight than people without health insurance. c. people with health insurance are equally likely to be overweight as people without health insurance. d. people with health insurance are less likely to be overweight than people without health insurance.

b. people with health insurance are more likely to be overweight than people without health insurance

Making optimal decisions "at the margin" requires a.making borderline decisions. b. weighing the costs and benefits of a decision before deciding if it should be pursued. c. making consistently irrational decisions. d. making decisions according to one's whims and fancies.

b. weighing the costs and benefits of a decision before deciding if it should be pursued

Which of the following is not an example of the economic question of what to produce? a. Should we urbanize farmland? b. What is the best type of cell phone? c. How much should we recycle? d. Should we make breakfast tacos or waffles? e. Should we make SUVs or all electric vehicles?

b. what is the best type of cell phone

A major question that faced societies 250 years ago was a. What would happen if you organized more of the economy with guilds. b. What would happen if you organized more of the economy with markets. c. What would happen if you organized more of the economy with government. d. Was there enough BlueBell? e. A, B, and C above.

b. what would happen if you organized more of the economy with markets

Which of the following is a normative economic statement? a. Rising corn prices have increased the price of corn-based ethanol. b. With rising home prices and falling mortgage interest rates, the amount of home foreclosures has decreased. c. Farmers should not be allowed to grow and sell genetically-modified crops. d. The federal government is considering increasing regulations on the use of fossil fuels to promote the use of wind power.

c. farmers should not be allowed to grow and sell genetically-modified crops

trade a. Only emerged in about 1,000 B.C. b. Only emerged once markets became established. c. Has been a feature of nearly all economies. d. Only came into existence when markets developed. e. None of the above.

c. has been a feature of nearly all economies

Which of the following is not an economic question: a. Do we have enough medical care in the economy? b. Should we recycle more? c. Is it better for stores to close on Sundays? d. All of the above are economic questions.

c. is it better for stores to close on sundays

Economists assume that the goal of consumers is to a. do as little work as possible to survive. b. consume as much as possible. c. make themselves as well off as possible. d. spend all their income.

c. make themselves as well off as possible

The extra cost associated with undertaking an activity is called a. net loss. b. foregone cost. c. marginal cost. d. opportunity cost.

c. marginal cost

The video describes the steps in simple arithmetic as proceeding from a. Numbers to cardinal numbers to addition to subtraction to division to multiplication. b. Numbers to addition to subtraction to division to multiplication. c. Numbers to cardinal numbers to addition to subtraction to multiplication to division. d. Cardinal numbers to numbers to addition to multiplication to subtraction to division. e. None of the above.

c. number to cardinal numbers to addition to subtraction to multiplication to division

The ________ the sale of an additional unit of a product is a marginal benefit to the firm. a. sales tax on b. extra cost of c. revenue received from d. total value of

c. revenue received from

Which of the following is a normative economic statement? a. The current low price of wheat is the result of increased worldwide supply. b. When the price of wheat falls, the cost of wheat-based products falls. c. The price of wheat is too low. d. When the price of wheat falls, the quantity of wheat purchased rises.

c. the price of wheat is too low

when buyers are buying goods in a market they are doing so because a. They choose the efficient allocation. b. They do not like the other good c. They prefer the good to the other good. d. A and B above. e. A and C above.

c. they prefer the good to the other good

Which of the following can be derived from other assumptions of economics a. Scarcity. b. Tradeoffs. c. Opportunity costs. d. B and C above. e. A and B above.

d. B and C above

Which of the following is a positive economic statement? a. The government should revamp its immigration policies. b. U.S. citizens should only buy products which are produced in the United States. c. The government should ban the production and sale of incandescent light bulbs. d. Raising the tax on gasoline raises the selling price of gasoline.

d. Raising the tax on gasoline raises the selling price of gasoline.

As early societies became more socially complex, economies started to rely a. On custom. b. On property rights. c. On markets. d. All of the above. e. None of the above.

d. all of the above

Early agricultural societies a. Limited the economic choices of many society members. b. Featured significant central control of land. c. Featured significant central control of water. d. All of the above. e. None of the above.

d. all of the above

Using basic assumptions you can determine a. Why markets are efficient. b. When markets are efficient. c. When government intervention helps or hurts economic performance. d. All of the above

d. all of the above

Which of the following can be derived from other assumptions about numbers. a. Subtraction. b. Multiplication. c. Division d. All of the above. e. B and C above.

d. all of the above

advantages of trade include that a. It permits specialization. b. It permits people some people to produce more than they consume. c. It takes advantage of comparative advantage. d. All of the above. e. A and C above.

d. all of the above

The key advantage of market exchange compared to one-on-one (barter) trade is that a. Barter limits trades because each person must want what the other one has. b. Markets use money, which is generally better. c. Markets are more organized. d. All of the above. e. A and B above.

d. all the above

Making "how much" decisions involves a. calculating the average benefit and the average cost of an activity to determine if it is worthwhile undertaking that activity. b. calculating the total benefits of the activity and determining if you are satisfied with that amount. c. calculating the total costs of the activity and determining if you can afford to incur that expenditure. d. determining the additional benefits and the additional costs of that activity.

d. determining the additional benefits and the additional costs of that activity

Which of the following is a positive economic statement? a. The government should mandate electric automobiles. b. People should not buy SUVs. c. Foreign workers should not be allowed to work for lower wages than the citizens of a country. d. Scarcity necessitates that people make trade-offs.

d. scarcity necessitates that people make trade-offs

Which of the following is not an economic question: a. Should seniors get the first pick of seats in the student section at Kyle? b. Should you study for a test or party? c. Should Texas A&M allocate seats in classes using a first-come, first-served approach? d. Should you eat healthy food? e. All of the above are economic questions.

d. should you eat healthy food

By definition, economics is the study of a. how to make money in the stock market. b. how to make money in a market economy. c. supply and demand. d. the choices people make to attain their goals, given their scarce resources.

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

Adam Smith's book, the Wealth of Nations, investigated a. The factors affecting economic wealth across countries. b. The role of wealth played in social well-being. c. The role of custom in the economy. d. The role of markets in determining economic efficiency. e. All of the above.

d. the role of markets in determining economic efficiency