ECO 201 - Lab 1

Which of the following is not a step that economists use in developing a useful economic​ model? A. Revise the model if it does not explain the data well. B. Use economic data to test the hypothesis. C. Make a value judgement about the merits of the hypothesis. D. Decide on the assumptions to be used in developing the model. E. Formulate a testable hypothesis.

C. Make a value judgement about the merits of the hypothesis

To compete in the automobile​ market, Tesla must make many strategic decisions such as whether to introduce a new car​ model, how to sell and service its​ cars, and where to advertise. At​ Tesla's Fremont, California​ plant, managers must decide on the monthly production quantities of their S and X models. In making this​ decision, the managers... A. Face a trademinus−​off, because producing more of one model means producing less of the other. B. Will always decide on production quantities in which revenues are maximized. C. Face no trademinus−off because the Fremont plant only produces these two models of the many Tesla models produced worldwide. D. Will choose to only produce the quantity of S and X models where marginal cost equals zero.

A. Face a trademinus−​off, because producing more of one model means producing less of the other.

Define Positive Analysis

Descriptive, factual statements about the world

True or False: Economists assume that the only reason people take the actions they do is in response to economic incentives.

False

In a market​ system, what determines how goods and services will be​ produced?

Firms determine how goods and services will be produced

What type of economic analysis is concerned with the way things ought to​ be?

Normative Analysis

__________ occurs when a good or service is produced at the lowest possible cost. __________ occurs when production is in accordance with consumer preferences.

Productive efficiency; Allocative efficiency

Why do economists use models?

To answer questions and analyze issues

How is economic data used?

To test models

True or False: The idea of people are rational assumes that consumers and firms use all available information as they act to achieve their goals.

True

Microsoft charges a price of​ $599 for a copy of Windows 7. Is this pricing decision​ rational?

When we assume the managers at Microsoft have used all available information and have weighed all known benefits and​ costs, we are assuming rationality.

A market is a group of ___________ of a good or service and the institution or arrangement by which they come together to trade.

buyers and sellers

What do economists mean by the term "marginal"? Economists believe that an activity should be continued up to the point where

extra or additional the marginal benefit from the activity is equal to the marginal cost.

Define Microeconomics

how households and firms make​ choices, how they interact in​ markets, and how the government attempts to influence their choices.

Economics is a social science because

it considers human behaviorlong dash—particularly ​decision-making behavior, it is based on studying the actions of individuals, and it applies the scientific method to the study of the interactions among individuals.

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

Japan has a market economy. As​ such, Japan​'s economy​ (relative to centrally planned​ economies) tends to result in

productive efficiency and allocative efficiency but not necessarily equity.

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

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.

Define Macroeconomics

the study of the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth.

Any model is based on making assumptions because

we cannot analyze an economic issue unless we reduce its complexity and models have to be simplified to be useful.

​Trade-offs force society to make​ choices, particularly when answering the following three fundamental​ questions:

​One, what goods and services will be​ produced? Two, how will the goods and services be​ produced? Three, who will receive the goods and services​ produced?