Microeconomics Chapter 1
Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a ▼ centrally planned mixed market -economy in which the government decides how economic resources will be allocated. Or a society can have a ▼ centrally planned mixed market -economy in which the decisions of households and firms interacting in markets allocate economic resources.
Centrally Planned, Market
In the United States, who receives the goods and services produced depends largely on ______
How income is distributed
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
Equity is
the fair distribution of economic benefits
Opportunity cost is
the highest valued alternative that must be give up to engage in an activity.
__________________decide(s) what goods and services will be produced.
Consumers, firms, and government
Which of the following shows a negative linearnegative linear relationship? (assume values of x greater than 0x>0) A. y equals negative 17 plus 1.5 xy=−17+1.5x B. y equals negative 17 plus StartRoot x EndRooty=−17+x C. y equals StartFraction 66 Over x EndFractiony= 66 x D. y equals 66 minus 5.9 xy=66−5.9x
D
A hypothesis in an economic model is A. tested before it can be accepted (or not rejected). B. a statement that may be either correct or incorrect about an economic variable. C. usually about a causal relationship. D. all of the above.
D. all of the above
Economics is a social science because A. it is based on studying the actions of individuals. B. it applies the scientific method to the study of the interactions among individuals. C. it considers human behaviorlong dash—particularly decision-making behavior. D. all of the above.
D. all of the above
Which of the following covers the study of topics such as inflation or unemployment?
Macroeconomics
A _______ economy is 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.
Mixed
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?
▼ Positive analysis Neutral analysis Normative analysis - is concerned with what is, and ▼ positive analysis neutral analysis normative analysis - is concerned with what ought to be. Economics is about ▼ positive analysis neutral analysis normative analysis -, which measures the costs and benefits of different courses of action.
Positive, normative, positive
▼ Voluntary exchange Productive efficiency Allocative efficiency -occurs when a good or service is produced at the lowest possible cost. ▼ Allocative efficiency Productive efficiency Voluntary exchange -occurs when production is in accordance with consumer preferences.
Productive efficiency, Allocative efficiency
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 call
Scarcity
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.
When we graph the relationship between two variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing so, however, can lead to incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include
an omitted variable and reverse causality.
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
Economics
is the study of the choices people make to attain their goals, given their scarce resources.
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.
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.
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
Macroeconomics is
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.
