ECON 201 study guide
Opportunity cost is
the highest valued alternative that must be given up to engage in an activity.
Every society faces trade-offs because we live in a world of scarcity. Suppose a student-athlete has the opportunity to earn $800,000 next year playing for a minor league baseball team, $700,000 next year playing for a European professional football team, or $0 returning to college for another year. The opportunity cost of the student-athlete returning to college next year is
$800,000
An opinion columnist in the Washington Post argues that the Stop Bad Employers by Zeroing Out Subsidies Act is "virtually guaranteed to hurt the very low-income working families its sponsors want to help." Source: Catherine Rampell, "Tax Bezos. Help Workers. But Not Like This." Washington Post, September 6, 2018. A) What was the main provision of this act? B) Why would the columnist argue that the act was more likely to hurt than help low-income families? C) If the columnist is correct, why did the sponsors of the act in Congress write the act the way that they did?
A) Firms whose employees received assistance from government benefits, including Medicaid and the Supplemental Nutrition Assistance Program (SNAP), would be required to pay a tax equal to cost of the assistance. B) Firms that might otherwise have hired a low-wage worker may now be reluctant to do so because the firms could be liable for paying the tax. C) The sponsors of the legislation may have hoped that firms would raise the wages of low-income workers, which would make it unnecessary for these workers to apply for government benefits.
A) Productive efficiency means that B) Allocative efficiency means that
A) a good or service is produced at the lowest possible cost. B) every good or service is produced up to the point where marginal benefit is equal to marginal cost
A) What do economists mean by the word "marginal"? B) Economists believe that an activity should be continued up to the point where
A) extra or additional B) the marginal benefit from the activity is equal to the marginal cost.
A) College football attendance, especially student attendance, has been on the decline. In 2017, home attendance at major college football games declined for the seventh consecutive year and was the lowest since 2000. The opportunity cost of engaging in an activity is the value of the best alternative that must be given up in order to engage in that activity. Source: Dennis Dodd, "College Football Heads in Wrong Direction with Largest Attendance Drop in 34 Years," cbssports.com, February 13, 2018. Your opportunity cost of attending a game compared with the opportunity cost facing a college student 17 years ago is B) Can this change in opportunity cost account for the decline in college football attendance? Briefly explain.
A)higher, because more games are televised today. B) Yes, because these changes increase the opportunity cost of watching football games in person.
Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a _______ economy in which the government decides how economic resources will be allocated. Or a society can have a ________ economy in which the decisions of households and firms interacting in markets allocate economic resources.
Centrally planned Market
Consider the following statement: "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes." What is the most correct response to this statement?
Economics assumes that consumers and firms are rational, not that they always make the right decisions.
Which of the following is a correct statement about a mixed economy?
In a mixed economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.
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.
Relative to a market economy, a centrally-planned economy would be expected to be
better at neither productive efficiency nor allocative efficiency because the absence of market-imposed competition negates the need of firms to satisfy consumer wants or produce using the lowest-cost methods.
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
Consider an organization dedicated to helping low-income people. The members of the organization are discussing alternative methods of aiding the poor, when a proponent of one particular method asserts: "If even one poor person is helped with this method, then all our time and money would have been worth it." If you were a member of the organization, what reply best represents clear economic thinking? This attitude
ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people.
Economics is a social science because
it applies the scientific method to the study of the interactions among individuals, it considers human behavior—particularly decision-making behavior, it is based on studying the actions of individuals. ALL
_____ is concerned with what is, and ____ is concerned with what ought to be. Economics is about _____, which measures the costs and benefits of different courses of action.
positive analysis normative analysis positive analysis
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.
Macroeconomics is
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals.
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?
