Econ 101

positive analysis

Study of "what is" — facts

T or F When voluntary exchange takes place, both parties gain from the exchange.

True

T or F "The distribution of income should be left to the market" is an example of a positive economic statement.

False

1870's

Marginalists

Distribution

Who will get the stuff that is made

T or F "A decrease in the price of tablet computers will decrease the demand for desktop computers." This statement is an example of a normative economic statement.

False

T or F An increase in the labor force shifts the production possibility frontier inwards over time.

False

T or F On a diagram of a production possibility frontier, economic growth is represented by the slope of the production possibility frontier.

False

T or F Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."

False

productive efficiency

Goods produced at the lowest cost

Allocation

How will we use our resources

Model as metaphor

Necessarily imperfect—story Judges on explanatory powers

Abstract

Necessity—— theory is fine but what about the real world

Marginal

One addition or one more

Before 1870

Political economists

Economic models do all of the following except A. make economic ideas explicit and concrete for use by decision makers. B. simplify some aspect of economic life. C. answer economic questions. D. portray reality in all its minute details

Portray reality in all its minute details

normative analysis

Study of "What ought to be" — value

Production

What is the best way to make stuff

opportunity cost

What you have to give up for the good you want

Which of the following is part of an economic model? a. hypotheses b. norms c. opinions d. preferences

a. hypotheses

absolute advantage

ability to produce more output than competitors, using the same resources

comparative advantage

ability to produce output at a lower opportunity cost than competitors

PPF - Production possibility frontier

captures scarcity exists. shows trade offs called frontier because shows what is possible

________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.

competition

T or F "A decrease in the price of tablet computers will decrease the demand for desktop computers." This statement is an example of a normative economic statement.

false

capitol goods

goods that are manufactured and will help produce goods later

consumption goods

goods we consume- shirts, cereal, video games

allocative efficiency

production is in accordance with consumer preferences. The last unit produced had MB=MC

The ________ the sale of an additional unit of a product is a marginal benefit to the firm

revenue received from

Which of the following is a positive economic statement? A. The government should mandate electric automobiles. B. Scarcity necessitates that people make trade-offs. C. People should not buy SUVs. D. Foreign workers should not be allowed to work for lower wages than the citizens of a country.

B. Scarcity necessitates that people make trade-offs. T

Which of the following is a normative economic statement? a. When the price of gasoline rises, transportation costs rise. B. The price of gasoline is too high. C. The current high price of gasoline is the result of strong worldwide demand. D. When the price of gasoline rises, the quantity of gasoline purchased falls.

B. The price of gasoline is too high.

Automobile manufacturers produce a range of automobiles such as sports utility vehicles, luxury sedans, pickup trucks and compact cars. What fundamental economic question are they addressing by making this range of products? A. Why produce a variety of automobiles? B. What to produce? C. Who to produce automobiles for? D. How to produce goods that consumers want?

B. What to produce?

If opportunity costs are constant, the production possibilities frontier would be graphed as A. a negatively sloped curve bowed in toward the origin. B. a negatively sloped straight line. C. a positively sloped straight line. D. a ray from the origin.

B. a negatively sloped straight line.

If opportunity costs are constant, the production possibilities frontier would be graphed as A. a ray from the origin. B. a negatively sloped straight line. C. a positively sloped straight line. D. a negatively sloped curve bowed in toward the origin.

B. a negatively sloped straight line.

The ________ demonstrates the roles played by households and firms in the market system. A. production possibilities frontier B. circular flow model C. business cycle D. theory of comparative advantage

B. circular flow model

The decision about what goods and services will be produced made in a market economy is made by A. consumers dictating to firms what they need most. lawmakers in the government voting on what will be produced. B. workers deciding to produce only what the boss says must be produced. C. consumers and firms choosing which goods and services to buy or produce. D. producers deciding what society wants most.

C. consumers and firms choosing which goods and services to buy or produce.

The term "property rights" refers to A. the right of a business not to have its assets confiscated by the government in the event that the business is accused of committing fraud. B. the physical possession of a house or any other property which the owner legally purchased. C. the ability to exercise control over one's own resources within the confines of the law. D. the government's right to appropriate land from wealthy land owners to redistribute to peasants.

C. the ability to exercise control over one's own resources within the confines of the law.

Command economy

Command—dynamic but unstable

Which of the following is a positive economic statement? A. The government should implement a national consumption tax. B. The standard of living in the United States is too low. C. The U.S. government should increase regulations on the banking industry. D. If the price of beef falls, a larger quantity of it will be bought.

D. If the price of beef falls, a larger quantity of it will be bought.

Which of the following questions or statements regarding medical school is normative? A. What role does tuition play in a student's decision about whether to attend medical school? B. How do changes in expected future incomes affect the decisions of medical students about which specialty to choose? C. Have tuition increases had a large effect or a small effect on the number of applications to medical school? D. Medical students who enter specialized fields make a larger contribution to society than do student who enter primary care.

D. Medical students who enter specialized fields make a larger contribution to society than do student who enter primary care.

Which of the following is a normative economic statement? A. When the price of wheat falls, the cost of wheat-based products falls. B. When the price of wheat falls, the quantity of wheat purchased rises. C. The current low price of wheat is the result of increased worldwide supply. D. The price of wheat is too low.

D. The price of wheat is too low.

All of the following are part of an economic model except A. hypotheses. B. assumptions. C. data. D. opinions

D. opinions

The points outside the production possibilities frontier are A. efficient. B. attainable. C. inefficient. D. unattainable

D. unattainable.

MB=MC

Keep doing things as long as Marginal increase is more than cost of undertaking it. Once equal you will stop

Market

Lure of growth and stability—Price cues provide incentive and attract or repel. Price competition drive efficiency in production

Tradition economy

Trial and error, customs, mores—stable but static

T or F "An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement.

True