Microeconomics Ch. 1
By definition, economics is the study of
the choices people make to attain their goals, given their scarce resources
Marginal
"extra" or "additional"
Which of the following is a positive economic statement
Scarcity necessitates that people make trade offs
Percent change
(2nd value - 1st value)/1st value
The coffee nook, a small cafe near campus sells cappuccinos for 2.50 and russian tea cakes for 1 dollar each. What is the opportunity cost of buying a cappuccino
2 1/2 Russian tea cakes
they sell 2.50 for cappuccinos and tea cakes for 1 dollar, what is the opportunity cost of buying a Russian tea cake?
2/5 of a cappuccino
Market
A group of buyers and sellers a good or service and the institution or arrangement by which they come together to trade
Economic model
A simplified version of reality used to analyze real-world economic situations
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
Voluntary exchange
A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction
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
When production reflects consumer preferences ______ occurs
allocative efficiency
Which of the following is a normative economic statement
Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable
Mixed economy
An economy in which most economic of buyers and sellers in markets but in which the government plays a significant role in the allocation
Centrally planned economy
An economy in which the government decides how economic resources will be allocated
Positive analysis
Analysis concerned with what is
Normative analysis
Analysis concerned with what ought to be
Marginal analysis
Analysis that involves comparing marginal benefits and marginal costs
How are the fundamental economic decisions determined in North Korea?
Central planned economy
Slope
Dy/Dx
Three key Econ. ideas
People are rational, People respond to economic incentives, Optimal decisions are made at the margin
Which of the following statements is true about scarcity?
Scarcity refers to the situation in which unlimited wants exceed limited resources
Economic variable
Something measurable that can have different values, such as the incomes of doctors
Allocative efficiency is achieved when firms produce goods and services
That consumers value most
Equity
The fair distribution of economic benefits
Opportunity Cost
The highest-valued alternative that must be given up to engage in an activity
Trade off
The idea that, because of scarcity, producing more of one good or service means producing less of another good or service
Which of the following is a normative economic statement?
The price of gasoline is too high
Microeconomics
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
Economics
The study of the choices people make to attain their goals, given their scarce resources
Macroeconomics
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
Who receives the most of what is produced in a market economy?
Those who are willing and able to buy them
Rational
Using all available information to achieve your goals, they compare the cost and benefits
Which of the following is a macroeconomics question?
What determines the inflation rate?
Which of the following is a microeconomics question?
What factors determine the price of carrots
Voluntary exchange between buyers and sellers generates _____ in a market economy
allocative efficiency
Market economy
an economy in which the decisions of households and firms interacting in markets allocate economic resources, usually more efficient
Economists assume that individuals
are rational and respond to incentives
Arlene quits her 125000 a year job to take care of her ailing parents. What is the opportunity cost of her decision?
at least 125000
There is often a trade off between _______
efficiency and equity
Microeconomics is the study of
how households and firms make choices
Which of the following is a positive economic statement?
if the price of iPhones falls, a larger quantity of iPhones will be purchased
Where do economic agents such as individuals, firms and nations, interact with each other
in any arena that brings together buyers and sellers
in economics the term ________ means "additional or "extra"
marginal
Economists reason that the optimal decision is to continue any activity up to the point where the
marginal benefit equals the marginal cost
Economists reason that the optimal decision is to continue any activity up to the point where the_______
marginal benefit equals the marginal cost
The term ______ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade
market
percent change is
new-old/old
The highest valued alternative that must be given up to engage in an activity is the definition of
opportunity cost
Suppose the US government encouraged consumers to trade in their old automobiles for more efficient, new models by paying up to $5,000 for the old automobiles. These consumers would be exemplifying the economic idea that
people respond to economic incentives
Holding all other personal characteristics such as age gender and income constant economists would expect that
people with health insurance will be more likely to be overweight than people without health insurance
Economic models do all of the following except
portray reality in all its minute details
______ is a situation in which a good or service is produced at the lowest possible cost
productive efficiency
Macroeconomics is the study of
the economy as a whole
The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of
trade off
Marginal analysis involves undertaking an activity
until its marginal benefits equal marginal costs
Making optimal decisions "at the margin" requires
weighting the costs and benefits of a decision before deciding if it should be pursued
Which of the following is not an example of an economic trade off that a firm has to make
whether or not consumers will buy its products
