econ 202 problem set 1
Which of the following statements is true about scarcity?
All individuals face a scarcity of time and need to make choices how to allocate it.
What type of economic analysis is concerned with the way things ought to be?
Normative Analysis
------------ efficiency occurs when a good or service is produced at the lowest possible cost. ------------ efficiency occurs when production is in accordance with consumer preferences.
Productive, Allocative
The three economic questions that every society must answer are
What goods will be produced, how will they be produced, and who will receive the goods?
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.
What do economists mean by the word "marginal"?
extra or additional
Centrally planned economies allocate resources based on decisions by ------------ while market economies answer these questions through decisions made by ---------- & ---------
government, households & firms
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.
b. The effect of higher income taxes on the total amount of consumer spending. This is a ------- issue.
macroeconomic
c. The reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries. This is a ---------- issue.
macroeconomic
The level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. This is a ------------- issue. However, to understand how much new machinery and equipment firms decide to purchase, one must analyze the incentives individual firms face, which is a --------------- issue.
macroeconomic; microeconomic
a. The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a --------- issue.
microeconomic
d. The reasons for low rates of profit in the airline industry. This is a ----------issue.
microeconomic
Economic models are:
simplified versions of reality designed to analyze "what is" to explain human decision making in any context.
Macroeconomics is the study of
the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Equity is
the fair distribution of economic benefits.
Economists believe that an activity should be continued up to the point where
the marginal benefit from the activity is equal to the marginal cost.
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.
Economists assume that people are rational in the sense that
they use all available information as they take actions intended to achieve their goals.
Economics assumes people and firms:
use all available information to achieve their goals, respond to incentives, and make decisions by comparing marginal benefits with marginal costs.
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?
Does Jeff Bezos face scarcity?
Yes, because even though billionaires' financial resources enable them to afford a much greater array of goods and services than those less wealthy, their financial resources are not infinite.
