Econ

Referring to question 17, your decision rule should be to complete the hot-dog stand as long as the cost to complete the stand is less than

800

Name two economic propositions for which more than 90 percent of economists agree.

A ceiling on rents reduces the quantity and quality of housing available. Tariffs and import quotas usually reduce general economic welfare.

circular flow diagram

A diagram of the economy that shows the flow of goods and services, factors of production, and monetary payments between households and firms

Which of the following activities is most likely to produce an externality

A student has a party in her dorm room

When an economist makes a normative statement, is she more likely to be acting as a scientist or a policy adviser? Why?

As a policy adviser because normative statements are prescriptions about what ought to be and are somewhat based on value judgment

positive statements

Descriptions of the world as it is

name two reasons why economists disagree

Economists may have different scientific judg- ments. Economists may have different values.

factors of production

Inputs such as land, labor, and capital

What do you think would happen to the amount of time it would take to find a parking place?

It would take much longer to find a parking place

Which of the following statements is true about a market economy

Market participants act as if guided by an "invisible hand" to produce outcomes that promote general economic well-being

what is the role of assumptions in any science?

To simplify reality so that we can focus our thinking on what is actually important.

You have spent $1,000 building a hot-dog stand based on estimates of sales of $2,000. The hot-dog stand is nearly completed, but now you estimate total sales to be only $800. You can complete the hot-dog stand for another $300. Should you complete the hot-dog stand? (Assume that the hot dogs cost you nothing)

Yes

Suppose a lawyer who earns $200 per hour can also type 200 words per minute. Should the lawyer hire a secretary who can only type 50 words per minute? Wh

Yes, as long as the secretary earns less than $50 per hour, the lawyer is ahead.

In the short run,

a decrease in inflation temporarily increases unemployment

Which of the following involve a trade-of

buying a new car, going to college, watching a football game on Saturday afternoon, taking a nap

Which of the following products would be least capable of producing an externality

food

Efficency

getting maximum output from the resources available

Imports

goods produced abroad and sold domestically

Exports

goods produced domestically and sold abroad

High and persistent inflation is caused by

governments increasing the quantity of money too much

Economics is best defined as the study of

how society manages its scarce resources

Raising taxes and increasing welfare payments

improves equality at the expense of efficiency

Productivity can be increased by

improving the education of workers

A marginal change is one that

incrementally alters an existing plan

An increase in the price of beef provides

information that tells producers to produce more beef

Scientific Method

objective development and testing of a theory

Trade-offs are required because wants are unlimited and resources are

scarce

Economics is the study of how

society manages its scarce resources

Because people respond to incentives, we would expect that if the average salary of accountants increases by 50 percent while the average salary of teachers increases by 20 percent

students will shift majors from education to accounting

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

absolute advantage

the ability to produce a good using fewer inputs than another producer

A rational person does not act unless

the action produces marginal benefits that exceed marginal costs

Which of the following is not part of the opportunity cost of going on vacation

the money you spent on food

Macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

Microeconomics

the study of how households and firms make decisions and how they interact in markets

Your opportunity cost of going to a movie is

the total cash expenditure needed to go to the movie plus the value of your time

Opportunity cost

whatever must be given up to obtain some item

opportunity cost

whatever must be given up to obtain some item

Workers in the United States enjoy a high standard of living because

workers in the United States are highly productive

What are the two subfields within economics? Which is more likely to be a building block of the other? Why?

Microeconomics and macroeconomics. Micro- economics is more of a building block of macro because when we address macro issues (for example, unemployment) we have to consider how individuals respond to work incentives such as wages and welfare.

gains from trade

The increase in total production due to specialization allowed by trade

Why do people choose to become interdependent as opposed to self-sufficient?

Because a consumer gets a greater variety of goods at a much lower cost than they could produce by themselves. That is, there are gains from trade.

Why does a production possibilities frontier have a negative slope (slope down and to the right)?

Because if an economy is operating efficiently, production choices have opportunity costs. If we want more of one thing, we must have less of another.

Whi is restriction of trade likely to reduce material welfare?

Because it forces people to produce at a higher cost than they pay when they trade

Why is the production possibilities frontier bowed outward?

Because resources are specialized and, thus, are not equally well suited for producing different outputs.

Why is comparative important in determining trade instead of absolute advantage?

What is important in trade is how a country's costs without trade differ from each other. This is determined by the relative opportunity costs across countries.

Suppose you find $20. If you choose to use the $20 to go to the football game, your opportunity cost of going to the game is

$20 (because you could have used the $20 to buy other things) plus the value of your time spent at the game.

Which of the following situations describes the greatest market power

Microsoft's impact on the price of desktop operating systems

What do you think would happen to the number of students desiring to park their cars on campus?

More students would wish to park on campus

Thinking in terms of opportunity cost, would the lower price of a parking permit necessarily lower the true cost of parking?

No, because we would have to factor in the value of our time spent looking for a parking place

Would the opportunity cost of parking be the same for students with no outside employment and students with jobs earning $15 per hour?

No. Students who could be earning money working are giving up more while looking for a parking place. Therefore, their opportunity cost is highe

Is a more realistic model always better?

Not necessarily. Realistic models are more complex. They may be confusing and they may fail to focus on what is important.

Which statements are testable: positive statements or normative statements? Why?

Positive statements are statements of fact and are refutable by examining evidence

normative statements

Prescription for how the world ought to be

Economic models

Simplifications of reality based on assumptions

What are the gains from trade?

The additional output that comes from trade---The additional output that comes from countries with different opportunity costs of production specializing in the production of the item for which they have the lower domestic opportunity cost.

describe the scientific method

The dispassionate development and testing of theory by observing, testing, and observing again

Evaluate this statement: A technologically advanced country, which is better than its neighbor at producing everything, would be better off if it closed its borders to trade because the less productive country is a burden to the advanced country

This is not true. All countries can gain from trade if their opportunity costs of production differ. Even the least productive country will have a comparative advantage at producing something, and it can trade this good to the advanced country for less than the advanced country's opportunity cost.

production possibilities frontier

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

Foreign Trade

allows a country to have a greater variety of products at a lower cost than if it tried to produce everything at home