Ch. 1

____ tend to be more efficient because they premote ____ and facilitate _______ ________.

Markets, efficient, voluntary exchange.

Economics applies the ______ _____ to the study of the interactions among individuals

Scientific Method: develop models, testing hypotheses, revising models

As a _____ science, economics considers ____ behavior- particularly decision-making behavior-in ____ context.

Social, human, every

Economics

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

Scarcity

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

Allocative efficiency

A state of the economy in which production is in accordance with consumer preferences; every good or service is produced up to the point where the last unit provides a marginal benefit equal to the marginal cost of producing it.

Productive efficiency

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

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 economy

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

Positive analysis

Analsis concerned with what is

Normative Analysis

Analysis concerned with what ought to be

Marginal analysis

Analysis that involves comparing marginal benefits and marginal costs.

What goods and services will be produced?

Consumers, firms, and the government face the problem of scarcity by trading off one good or service for another. Each choice made comes with an opportunity cost, measured by the value of the best alternative given up

People are rational.

Economists assume that consumers and firms use all available information as they act to achieve their goals, weighing the benefits and costs of each action, and choosing an action only if the benefits outweigh the costs—even if it is not always the "best" decision.

There is often a trade-off between ____ and ____.

Efficiency, equity

How will the goods and services be produced?

Firms choose how to produce the goods and services they sell, often facing a trade-off between using more workers or using more machines.

Voluntary exchange

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

____ economy's tend to be more ______ than _____economy's

"Market, efficient, centrally planned

Optimal decisions are made at the margin

"Most decisions in life involve doing a little more or a little less. Economists reason that the optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost—in symbols, where MB = MC.

Opportunity cost

"The highest-valued alternative that must be given up to engage in an activity.

Trade-off

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

To develop a model, economists generally "DFURR"

1) Decide 2) Formulate 3) Use 4) Revise 5)Retain

Trade-offs force society to make choices when answering what 3 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 produced?

To answer the 3 main questions: what, how, who, societies orginize themselves in to what type of economies?

Centerally planned, market economies

Who will receive the goods and services produced?

In the United States, who receives the goods and services produced depends largely on how income is distributed.

What are the 3 key economic ideas

People are rational. People respond to economic incentives. Optimal decisions are made at the margin

Equity

The fair distribution of economic benefits

Economics is about ____, which measures the ____ and ____ of different courses of action.

positive analysis, cost and benefits

Models in economics makes _____ ____ aboout the _____ of _____ and ______.

behavioral assumptions, motives, consumers and firms.