Chapter 1 (macro)

T

(T or F) Most disagreements among economists involves normative, value-based policy questions.

Aggregate

A collection of specific economic units treated as if they were one unit is a (an)

marginal benefits, marginal costs

A comparison of _____ ____ and _____ _____ is needed to determine the best or optimal output mix on a production possibilities curve.

resources, technology

A production possibilities curve assumes a fixed availability of supplies of _______ and fixed _______.

increasing opportunity costs

A production possibilities curve is bowed out from the origin because it reflects the law of ____ _____ _____.

budget line (budget constraint)

A schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income.

economic growth

A shift representing growth of economic capacity, means _______ _______: a larger total output.

entrepreneurial ability

A special human resource, distinct from labor, called _____ ____.

Capital

All manufactured aids used in producing consumer goods and services. All factory, storage, transportation, and distribution facilities, as well as tools and machinery.

Land

All natural resources (gifts of nature) used in the production process. Forests, mineral and oil deposits, water, wind power, sunlight, and arable land.

fully employed

All points on a production possibilities curve represent a _____ _____ economy.

Privately, collectively, society

All resources are either ____________ or ________ owned my members of society. Therefore, ultimately, __________ bears the cost.

opportunity cost

An ________, the value of the next best thing forgone, is always present when a choice is made.

benefit, cost, exceeds.

An economic activity should be expanded as long as marginal ______ exceeds marginal ______ and should be reduced if marginal cost ______ marginal benefit.

shifts, right

An increase in income _______ the budget line to the ______.

economic principle

As a result of the scientific method, a very well-tested and widely accepted theory is referred to as an economic law or an ________ __________.

increasing opportunity costs

As production of a particular good increases, the opportunity cost of producing an additional unit rises. This illustrates the law of _____ _____ _____.

factors of production, inputs

Because land, labor, capital, and entrepreneurial ability are combine to produce goods and services, they are called the ____ __ _____, or simply _____.

purposeful or rational

Because people weigh the costs and benefits, their economic decisions are ____ or _____, not random or chaotic.

Self-interested behavior

Behavior designed to increase personal satisfaction, however it may be derived.

positive, normative

Both microeconomics and macroeconomics contain elements of _____ economics and _______ economics.

more later, less now

By moving towards the alternative of producing only capital goods, society chooses "_____ ___" at the cost of "_____ ____".

more now, much later

By moving towards the alternative of producing only consumer goods, society chooses "_____ ____" at the expense of "_______ more _____"

directly, indirectly

Capital goods differ from consumer goods because consumer goods satisfy wants _______, whereas capital goods do so _________ by aiding the production of consumer goods.

maximum, two

Each point on the production possibilities curve represents some _______ combination of ______ products that can be produced if resources are fully employed.

adaptable, alternative

Economic Rationale: The law of increasing opportunity costs is driven by the fact that economic resources are not completely _______ to ______ uses. Many resources are better at producing one type of good than at producing others.

normative

Economic policy involves _______ economics.

generalizations

Economic principles are _______ relating to economic behavior or to the economy itself.

Scarcity

Economic resources needed to make goods and services are in limited supply. This restricts options and demands choices.

rational self-interest

Economics assumes that human behavior reflects _______.

Positive economics

Economics that focus on facts and cause-and-effect relationships.

normative economics

Economics that incorporates value judgments about what the economy SHOULD be like or what particular policy actions SHOULD be recommended to achieve a desirable goal.

land, labor, capital, entrepreneurial ability

Economists classify economic resources in four general categories: _____, ____, ____, and ______ _____.

Investment

Economists use the term ______ to describe spending that pays for the production and accumulation of capital goods.

entrepreneurs

Entrepreneurial ability is supplied by ______, who perform several critically important economic functions.

Macroeconomics

Examines the performance and behavior of the economy as a whole.

government, household, business sectors.

Examples of major economic aggregates are ______,______, and ______.

capital, consumer

For example, large commercial baking ovens (______ goods) help make loaves of bread (_____ goods)

buy

If the marginal benefit exceeds marginal cost, you _________ the product.

marginal cost

In a world of scarcity, the decisions to obtain the marginal benefit associated with some specific option always includes the _________ of forgoing something else.

ceteris parabus or other-things-equal assumption

In constructing theories, economists use the __________ - the assumption that factors other than those being considered do not change.

specific units

In macroeconomics very little attention is given to the ______ ______ making up the various aggregates.

marginal benefits, marginal costs

In making choices rationally, the decision maker must compare the two choices of _______ and ______.

aggregates

In using _______, macroeconomics seeks to obtain an overview, or general outline, of the structure of the economy and the relationships of its major aggregates.

increase

Individuals look for opportunities to ______ their utility.

Positive

Is the following statement Pos. or Norm. "The unemployment rate in France is higher than that in the U.S."

Normative

Is the following statement Pos. or Norm." France ought to undertake policies to make its labor market more flexible to reduce unemployment rates."

consumer, capital

It is unrealistic for an economy to devote all available resources to the production one good, therefore an economy typically produces both _____ goods and _____ goods.

scientific method

Like physical and life sciences, economics relies on the __________.

Production possibilities table

Lists the different combinations of two products that can be produced with a specific set of resources.

economic growth, the business cycle, interest rates, inflation, aggregates

Macroeconomics focuses its attention on _________, _______, _________, ________, and the behavior of major economic ________.

total output, total employment, total income, aggregate expenditures, prices

Macroeconomics speaks for _____,______,______,________, and the general level of _________ in analyzing various economic problems.

desirability

Normative economics looks at the ______ of certain aspects of the economy.

consumer, capital

On a production possibilities curve, the x-axis represents _____ goods, and the y-axis represents _____ goods.

time, energy and money

People allocate their ___, ___, and ____ to maximize their satisfaction.

outside, full

Points ______ the curve are attainable, but they indicate that _____ employment is not being realized.

output, desirable

Points lying inside the production possibilities curve are attainable, but they reflect less total _____, and are not ______ points on the curve.

value judgements

Positive economics avoids ______ ______.

what is, ought to be

Positive economics concerns ____ ____, whereas normative economics embodies subjective feelings about what ____ __ __.

description, development, testing

Positive economics includes _______, theory ________, and theory ________.

scientific, economic

Positive economics tries to establish ________ statements about ________ behavior and deals with what the economy is actually like.

Consumer goods

Products that satisfy our wants directly.

Capital goods

Products that satisfy our wants indirectly by making possible more efficient production of consumer goods.

outside

Scarcity of resources is implied by the area of unattainable combinations of output lying ______ the production possibilities curve.

Purposeful behavior

Simply means that people make decisions with some desired outcome in mind.

economic resources

Society has limited or scarce _____ _____, meaning all natural, human, and manufactured resources that go into production of goods and services.

scarce resources

Society uses its ______ ______ to produce goods and services.

production possibilities

The alternative and choices society faces can best be understood through a macroeconomic model of ______ ______.

full employment

The assumption that the economy is employing all of its available resources.

two goods, consumer goods, capital goods

The assumption that the economy is producing only two goods: Pizzas and industrial robots. Pizzas symbolize ______ _____; industrial robots symbolize ______ ______.

fixed resources

The assumption that the quantity and quality of the factors of production are fixed.

fixed technology

The assumption that the state of technology (the methods used to produce output) is constant.

curve

The data presented in a production possibilities table are shown graphically as a production possibilities _____.

Marginal analysis

The economic perspective focuses largely on

Economic Perspective

The economic way of thinking. Economists view things from a unique perspective.

commercializes, organization

The entrepreneur ______ new products, new production techniques, or even new forms of business _______.

risk

The entrepreneur bears the ____ of innovation.

business decisions

The entrepreneur makes the strategic ________ ______ that set the course of an enterprise.

good, service

The entrepreneur takes the initiative in combining the resources of land, labor, and capital to produce a ____ or a _____.

flexibility, resources

The lack of perfect ______, or interchangeability, on the part of _______ is the cause of increasing opportunity costs for society.

economizing problem

The need to make choices because economic wants exceed economic means.

greater, preceding

The opportunity cost of each additional consumer good is _____ than the opportunity cost of the _______ one.

Microeconomics

The part of economics concerned with decision making by individual customers, workers, households, and business firms.

labor

The physical actions and mental activities that people contribute to the production of goods and services.

Utility

The pleasure, happiness, or satisfaction obtained from consuming a good or service.

consumer, slowly, production

The shift of resources to _______ goods catches up with society over time because the stock of capital goods expands more _________, thereby reducing potential future ______

money

The term capital as used by economists does NOT refer to ______ but to tools, machinery and other productive equipment.

extra, additional, a change in

To economists, marginal means ____, ______, _______.

Opportunity Cost

To obtain more of one thing, society forgoes the opportunity of getting the next best thing.

budget line, budget constraint.

We can clarify the economizing problem facing consumers by visualizing a _____ _____ or aka ____ _____.

outward, right

When an increase in the quantity or quality of a resource occurs, the production possibilities curve shifts ______ and to the _____.

Full employment, fixed resources, fixed technology, two goods

When using a production possibilities model we initially assume _______, _______, ______ and _____ ______.

shifts, output

When we drop the assumptions that the quantity and quality of resources and technology are fixed, the production possibilities curve ______ positions and the potential maximum _____ of the economy changes.

limited, technology, unattainable

_____ resources and a fixed ______ make any combination lying outside the curve ________.

scarce

______ resources prohibit a fully employed economy from having more of both types of goods.

straight line

______-____ budget constraints imply constant opportunity costs for both goods.

Purposeful behavior, faulty

_________ does not assume that people and institutions are immune from ______ logic and therefore are perfect decision makers.

Marginal analysis

comparisons of marginal benefits and marginal costs, usually for decision making.

downward

opportunity cost is illustrated by the ______ slope of the production possibilities curve