Econ Chapter 1

Mixed Economy

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.

Market economy

An economy in which the decisions of households and firms interacting in markets allocate economic resources.

centrally planned economoy

An economy in which the government decides how economic resources will be allocated.

Which of the following covers the study of topics such as inflation or​ unemployment?

Macroeconomics

Which of the following is not a step economists follow when developing an economic​ model?

Make value judgments to be proven or disproven.

Microeconomics

The study of how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices.

A market is a group of

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

Societies organize their economies in two main ways to answer the three questions of​ what, how, and who. A society can have a _____________economy in which the government decides how economic resources will be allocated. Or a society can have a __________economy in which the decisions of households and firms interacting in markets allocate economic resources.

centrally planned; market

positive analysis

concerned with what is

normative analysis

concerned with what ought to be

Microeconomics is most likely to include the study of

consumer choices

Economics is a social science because

it applies the scientific method to the study of the interactions among individuals, it considers human behaviorlong dash—particularly ​decision-making behavior, it is based on studying the actions of individuals.

Examining whether government intervention can reduce the severity of recessions is most likely an issue in

macroeconomics

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.

Any model is based on making assumptions because

models have to be simplified to be useful and we cannot analyze an economic issue unless we reduce its complexity.

Productive Efficiency

occurs when a good or service is produced at the lowest possible cost

Allocative Efficiency

occurs when production is in accordance with consumer preferences

Economics is about ________, which measures the costs and benefits of different courses of action.

positive analysis

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

Equity

the fair distribution of economic benefits

Opportunity Cost

the highest valued alternative that must be give up to engage in an activity.

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

economics

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

Macroeconomics is

the study of the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth.

A hypothesis in an economic model is

usually about a casual relationship, a statement that may be either correct or incorrect about an economic variable, and tested before it can be accepted (or not rejected).