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).