Microeconomics Chapter 1

What questions could be answered using economics?

"How are the prices of goods and services determined?" "How does pollution affect the economy, and how should government policy deal with these effects?" "Why do firms engage in international trade, and how do government policies affect international trade?"

What is an example of a positive question?

If the college increased tuition, would class sizes decline?

Fill in the blank:is the study of how households and businesses make choices, how they interact in markets, and how the government influences their choices.

Microeconomics

What describes the characteristics of models used in economics?

Models are simplifications of reality that include only essential elements and exclude less relevant details.

Whatg is not among the fundamental economic questions that every society must solve?

What goods and services will be exchanged?

What covers the study of topics such as inflation and unemployment?

macroeconomics

What is the stock of computers, factory buildings, and machine tools used to produce goods better known as?

physical capital

What involves an estimation of the benefits and costs of a particular action?

positive analysis

trade-off

the idea that because of scarcity, producing more of one good or service means producing less of another good or service.

Productive efficiency

the situation in which a good or service is produced at the lowest possible cost.

Scarcity

the situation in which unlimited wants exceed the limited resources available to fulfill those wants

Voluntary exchange

the situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction

Economics

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

What is the purpose of an economic hypothesis?

to establish a causal relationship

three fundamental questions

1.What goods and services will be produced? 2.How will the goods and services be produced? 3.Who will receive the goods and services?

What statements best defines scarcity?

Scarcity is a situation in which unlimited wants exceed the limited resources available to fulfill those wants

What questions can be answered using normative economic reasoning?

Should a college cut tuition to stimulate enrollments?

In what type of economy does the government decide how economic resources will be allocated

a centrally planned economy

market

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

When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of?

a market

What type of assessment is one in which a person's values and political views form part of that assessment

a normative assessment

What type of statement would "A minimum wage actually reduces employment" be considered?

a positive statement

economic model

a simplified version of reality used to analyze real world economic situations.

What terms best refers to a fair distribution of economic benefits?

equity

Marginal analysis

involves comparing marginal benefits and marginal costs.

What types of economies require that answers be given to the following questions: what goods and services will be produced, how will the goods and services be produced, and who will receive the goods and services produced?

market economies centrally planned economies mixed economies

What is the best classification for the economies of the United States, Canada, Japan, and Western Europe?

mixed economies

What type of economic analysis is concerned with the way things ought to be?

normative analysis

What is not an essential component of an economic model?

normative statements

What does an economy achieve by producing a good or service at the least possible cost?

productive efficiency

economic variable

something measurable that can have different values, such as the wages of software programmers.

Human capital

the accumulated training and skills that workers possess.

Which of the following terms summarizes the situation in which a buyer and a seller exchange a product in a market and, as a result, both are made better off by the transaction?

voluntary exchange

What is achieved when a good or service is produced up to the point where the marginal benefit to consumers is equal to the marginal cost of producing it?

allocative efficiency

What is the name given to the practical application of an invention?

an innovation

What is the name given to the development of a new good or a new process for making a good?

an invention

Positive analysis

analysis concerned with what is

Normative analysis

analysis concerned with what ought to be

Fill in the blanks. In economics, as well as in life, optimal decisions are made.

at the margin

Allocative efficiency

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 produced provides a marginal benefit to society equal to the marginal cost of producing it.