chapter one

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The rationality assumption as used in economics

states that people respond to incentives.

_______________________ economics is​ value-free and relates to statements that can be​ refuted, such as​ "If A, then​ B."

positive

Two key assumptions in economics​ are:

1) that people are rational long dash— that people do not intentionally make decisions that would leave them worse​ off, and​ 2) people respond to changes in incentives​ -- if individuals never intentionally make decisions that would leave them worse​ off, then by definition they will respond to changes in incentives pursuing actions that make those individuals better off or avoiding actions that make them worse off.

Which of the following is not true about economic​ models?

A good model must be realistic.

_________________ economics emphasizes psychological constraints and complexities that potentially interfere with rational decision making. This approach utilizes the ________________________ hypothesis that people are not quite​ rational, because they cannot study every possible alternative but instead use simple rules of thumb to decide among choices.

Behavioral; bounded rationality

Everyone should enjoy open access to healthcare.

Normative economics

Falling gasoline prices will result in additional vacation travel.

an increase in hotel taxes at popular resorts

A reduction in income tax rates will result in more people working

an increase om the outsourcing of jobs

Positive economic statements​ ________, and normative economic statements​ ________.

are concerned with​ "what is"; are concerned with​ "what ought to​ be"

Economics

assumes individuals are rational and respond to different incentives.

Most models use the __________ assumption that all other things are held​ constant, or equal.

ceteris paribus

Which of the following is a true statement about​ self-interest as used in the study of​ economics?

Any action can be based on​ self-interest if the person has some reason for the action.

Which of the following statements is​ true?

Economics is a science since the study of economics uses models and theories that are subject to empirical testing.

Increasing the earnings of minimum wage employees is​ desirable, and raising the minimum wage is the best way to accomplish this.

Normative economics

Analysis involving value judgments about economic​ policies; relates to whether things are good or bad. A statement of what ought to be.

Normative​ economics

A higher minimum wage will reduce employment opportunities for minimum wage workers.

Positive economics

Heathcare subsidies will increase the consumption of health care.

Positive economics

Analysis that is strictly limited to making either purely descriptive statements or scientific​ predictions; for​ example, "If​ A, then​ B." A statement of what is.

Positive​ economics

Which of the following is not one of the three fundamental questions of​ economics?

Where will items be​ produced?

The three fundamental economic questions that a nation addresses in order to allocate​ society's scarce resources include all of the following ​except:

Why will the items be​ produced?

One of your​ classmates, Sally, is a hardworking​ student, serious about her​ classes, and conscientious about her grades. Sally is also​ involved, however, in volunteer activities and an extracurricular sport. Is Sally displaying rational ​behavior?

Yes, she is using her time allocated among​ school, studying, sports and volunteer work in a manner she deems best.

The economic system in which a government establishes ownership of resources and issues rules for how to manage the production of products is best described as

a command and control system.

A politician states​ "taxes should be raised to provide more spending on school lunch​ programs." This is:

a normative economic statement.

An increase in the price of gasoline will reduce the amount of gasoline purchased. This is:

a positive economic statement.

The hypothesis that people are nearly​, but not​ fully, rational, so that they cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them is known as

bounded rationality

Each country has a unique economic system to allocate its scarce resources.​ However, the economic system of most of the​ world's nations are a combination of the ___________________ system and the _____________________ system.

central planning price

The two opposing sets of answers are offered by alternative economy​ systems: ​ (1) centralized ___________________ and​ (2) the ____________________ system.

command and control price

An economist can evaluate which is the better model for forecasting electoral outcomes by

comparing the predictions of the two models with actual election results.

In​ economics, we assume that people _________________ make decisions that will leave them _____________ off.

do not intentionally; worse

A​ society's institutional mechanism for determining the way in which scarce resources are used to satisfy human desires refers to its

economic system.

Economic models relate to the way people think rather than to the way people act.

false

It is relatively easy for an author to keep all normative statements out of a textbook.

false

On a coordinate number​ system, the vertical number line is known as the x axis and the horizontal number line is known as the y axis.

false

The concept of self interest assumes that individuals can only further their goals at the expense of other individuals.

false

The slope is constant at all points on a nonlinear curve.

false

When constructing a graph in​ economics, it is conventional to put quantities on the​ ________ and dollar values on the​ ________.

horizontal​ axis; vertical axis

On a horizontal number​ line, the numbers​ ________, and on a vertical number​ line, the numbers​ ________.

increase from left to​ right; increase as we move up the line

Based on the recommendation of a​ friend, you buy a ticket and attend a movie with high expectations. After seeing the​ movie, you think that it is the worst film ever made and that it was a complete waste of money. This situation

is consistent with rational behavior because you had thought that you were going to like the movie

Until​ 2008, the people of the fictitious nation of Dor relied mainly on private car companies to determine how many automobiles to produce. After​ 2008, the people of Dor have been relying on the Dor government to determine how many automobiles to produce. This represents a shift in the economic system of Dor from

market system to central planning

A _____________________ uses assumptions and is by nature a simplification of the real world. Its usefulness can be evaluated by bringing empirical evidence to bear on its predictions.

model

For​ U-shaped expressions that​ 'open-down', as you approach the maximum point the slope is positive long dash— as x​ increases, y increases. Beyond that maximum point the slope is:

negative

If the tangent line is downward​ sloping, the slope of the curve is

negative

_____________ economics involves​ people's values and typically uses the word should.

normative

​"We ought to do more for the education of our​ children." Statements using words like ought or should are

normative statements.

The ceteris paribus assumption means

other things equal.

For​ U-shaped expressions that​ 'open-up', as you approach the minimum point the slope is negative long dash— as x​ increases, y decreases. Beyond that minimum point the slope is:

positive

If the tangent line is upward​ sloping, the slope of the curve is

positive

An economic model

should capture only the essential relationships that are sufficient to analyze a particular problem or answer a particular question.

The model for forecasting electoral results that is more firmly based on the rationality assumption of economics is

the Iowa Electronic Market model using​ prices, as the traders on this exchange have a strong incentive to make the best possible forecast.

To evaluate the impact of an increase in the range of choices that an individual confronts when deciding among devices for accessing the​ internet, an economic researcher makes the assumption that the individual is unable to take into account every new​ internet-access option available to her. In examining the above​ decision-making process, the approach that the economist is following can best be described as the one that relies on:

the assumption of bounded rationality

An economist seeking to predict the effect that an increase in a​ state's sales tax rate will have on​ consumers? Purchases of goods and services presumes that people are limited in their ability to process information about how the​ tax-rate increase will influence the​ after-tax prices those consumers will pay. In examining the above​ decision-making process, the approach that the economist is following relies on:

the assumption of bounded rationality.

An economic model is developed from a set of assumptions about consumer behavior and predicts that people will buy less of a good the higher the price of the good. Empirical testing of this model would involve

the collection of data to evaluate the usefulness of the model.

The notion that people do not intentionally make decisions that would leave them worse off is known as

the rationality assumption

An economic study of the number of online searches that individuals conduct before selecting a particular item to purchase online presumes that people are interested only in their own​ satisfaction, pursue their ultimate​ objectives, and consider every relevant option. In examining the above​ decision-making process, the approach that the economist is following can best be described as the one that relies on

the rationality assumption.

People may appear to use rules of​ thumb, as suggested by the assumption of bounded​ rationality, even though they may really be behaving in a manner suggested by the rationality assumption if

they face persistently predictable range of choices for a period of time.

A model is considered​ "good" if it yields usable predictions that are supported by​ real-world observations.

true

Much of human behavior can be explained in terms of how individuals respond to changing incentives over time.

true

The bounded rationality hypothesis assumes people are not fully rational and therefore use simple rules of thumb to sort among the alternatives that happen to occur to them.

true

The economic system in which individuals and families own all of the scarce resources used in​ production, decide how and what to​ produce, and how many products to​ produce, is best described as a price system.

true

The rationality assumption of economics is the assumption that people do not intentionally make decisions that would leave them worse off.

true

The relationship between two variables is inverse when a decrease in one variable is associated with an increase in the other variable.

true

The slope is constant at all points on a straight line in a graph.

true

Proponents of behavioral economics suggest that traditional economic models assume that people exhibit all of the following​ "unrealistic" characteristics except

unbounded altruism.

The three basic economic questions are​ __________ will be​ produced, __________ will items be​ produced, and for​ __________ will items be​ produced?

what and how​ much; how; whom

If the tangent line is​ horizontal, the slope of the curve is

zero

Ceteris Paribus means

​"other things​ constant."


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