ECON 202

Voluntary exchange

A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction

Margin

One extra

Economic Growth

Outward shifts in the production possibilities frontier

Do economists assume that the only reason people take the actions they do is in response to economic incentives?

false

what assumptions do economic models make about the motives of consumers and firms

behavioral

steps economist follow to generate a new model

1.Decide on the assumptions to use in developing the model 2.Formulate a testable hypothesis 3.use economic data to test the hypothesis 4.Revise the model if it fails to explain the economic data well 5.Retain the revised model to help answer similar economic questions in the future

Three important ideas about markets

1.People are rational 2.People respond to economic incentives 3.optimal decisions are made at the margin

Trade offs force an economy to evaluate these three questions

1.What will be produced 2.How will it be produced 3.Who will it be sold to

Market

A group of buyers & sellers of goods or services

When new prescription drugs are introduced with much higher prices than existing drugs, state governments face a trade-off between

A reduction in spending on another worthwhile program or an increase in taxes

Productive Efficiency

A situation in which a good or service is produced at the lowest possible cost

Allocative Efficiency

A state of the economy n which production is in accordance with consumer preferences; in particular, every good service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it

Warren Buffet is the Chief Executive Officer of the investment firm Berkshire Hathaway and one of the wealthiest people in the world. In an editorial in the Wall Street Journal​, Buffet argued that economic policies in the United States should be designed so that people who are willing to work receive enough income to live a​ "decent lifestyle." He argued that an expansion of the Earned Income Tax Credit​ (EITC) would be superior to an increase in the minimum wage as a means to reach this goal. The EITC is a program under which the federal government makes payments to​ low-income workers. ​Source: Warren​ Buffet, "Better Than Raising the Minimum​ Wage," Wall Street Journal​, May​ 21, 2015. Is Buffet correct that it is the role of the federal government to make sure people who work will have enough income to live a​ "decent lifestyle"?

A. He is correct because only the government can make sure people who work will have enough income to live a​ "decent lifestyle." B. This is a normative economic​ question, so the answer is a matter of the norms or values of the person answering. C This is a positive economic​ question, so the answer is a matter of the norms or values of the person answering. D. He is incorrect because if the government​ provides, people will not have an incentive to support themselves. B

A. Poverty rates by geographic region. B. Med school tuition​ rates, applications, and enrollments. C. Age distribution characteristics of the population by geographic region. D. Physician incomes by specialty and geographic region. E. All of the above. Assuming that these statistics are available or could be​ gathered, are they likely to resolve the normative issues in this​ debate?

A. ​No, because normative issues involve value judgments that incorporate an​ individual's full range of​ experiences, beliefs, and emotions. B. ​Yes, the quantitative analysis of hard economic data leaves no unsettled questions. Subjective considerations cannot override objective analysis. A

Economic data is used

A.To prove that a model is true. B.to take the places of an economic model. C.only if all relevant data is available. D.To tes models. D

Which of the following events would create economics growth, that is, shift the production possibilities frontier outward?

An increase in technology that affects the production of both goods. An increase in the available natural resources. An increase in the available labor.

Which of the following is not a step that economists use in developing a useful economic model?

A.Decide on the assumptions to be used in developing the model. B.Use economic data to test the hypothesis. C.Formulate a testable hypothesis D.Revise the model if it does not explain the data well. E.Make a value judgment about the merits of the hypothesis. E

Which of the following statements about economics as a social science is correct?

A.Economics uses normative analysis but not positive analysis. B.Economics considers human behavior only in the context of business. C.Economics studies the actions of individuals. D.Economics is not useful in analyzing the effects of government policy. C

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

A.Marginal Analysis B.Positive Analysis C.Normative Analysis D.Rational Behavior C

Which of the following statements about microeconomics and microeconomics is correct?

A.Microeconomics involves the study of how households and firms make choices. B.Microeconomics does not involve the analysis of economic policy. C.Macroeconomics does not involve the analysis of economic policy. D.All economic situations can be categorized as being microeconomics and macroeconomics. A.Microeconomics involves the study of how households and firms make choices.

The Making the Connection explains that there are both positive and normative elements to debate over whether medical schools should charge tuition and whether hospitals should continue to pay residents who pursue primary care but not residents who specialize. Which of the following economic statistics would be the most useful in evaluating the positive elements in this debate?

A.Poverty rates by geographic region B.Med school tuition rates, applications, and enrollments C.Age distribution characteristics of the population by geographic region. D.Physicians income by specialty and geographic region. E.All of the above. E

Suppose economist develop an economic model and find that "it works great in theory, but fails in practice." Which of the following should the economist do next?

A.They should revise the model in light of its failure to explain or predict real world events. B.They should leave the model as is. A model does not need to explain or predict real world events. C.They should retest the current model, as there may have been an error in the testing methods the first time. D.None of the above. A

Economists use models

A.To answer questions and analyze issues. B.to prove that theories are true. C.to disprove economic data. D. To describe the real world exactly. A

Normative Analysis

AN OPINION

Where are optimal decisions made; not an all or nothing decision

At the margin

Marginal Analysis

Comparing marginal benefit to marginal cost

Positive Analysis

Concerned with what is

The production possibilities frontier will shift outward

If resources are used to produce capital goods

What does marginal opportunity cost mean?

Increasing the production of a good requires larger and larger decreases in the production of another good.

The reason for economies of East Asian countries growing faster than the economies of sub-Saharan African countries. Is what type of issue.

Macroeconomics

Which of the following areas of economics studies issues such as whether government intervention is capable of reducing the severity of recessions?

Macroeconomics

The effect of higher taxes on the total amount of consumer spending. Is what type of issue?

Microeconomics

The effects if higher taxes on the quantity of cigarettes sold. Is what type of issue?

Microeconomics

The reasons for low rates of profit in the airline industry. Is what type of issue?

Microeconomics

Which of the following areas of economics studies issues such as ways to reduce teenage smoking

Microeconomics

A primary difference between macroeconomics and microeconomics is

Microeconomics examines individual markets while macroeconomics examines the economy as a whole.

Dr.Strangelove's theory is that the price of mushrooms is determined by the activity of subatomic particles that exist in another universe parallel to ours. When the subatomic particle emitted in profusion, the price of the mushrooms is high. When subatomic particle emissions are low, the price of mushrooms also is low. Is it possible to test this theory?

No

The federal government should spend more on AIDS research. This represents, which type of analysis?

Normative

The price of coffee at Starbucks is too high. This represents which type of analysis?

Normative

Which of the following statements about normative analysis is correct?

Normative analysis is concerned with what ought to be

A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents, what type of analysis?

Positive

Rising paper prices will increase textbook prices, this represents which type of analysis?

Positive

Which of the following statements about positive analysis is correct?

Positive analysis is concerned with what is

PPF

Shows the maximum attainable combinations of two goods that may be produced with available resources.

Economic Model

Simplified version of reality

Economic Variable

Something measurable that can have different values. Such as the incomes of doctors

suppose we can divide all the goods produced by an economy in two types: consumptions goods and capital goods. is it likely that the production possibilities frontier in this situation would be a straight line or bowed out?

The production possibilities frontier would likely be bowed out because not all resources are equally ell suited to produce both consumption and capital goods

Trade

The act of buying and selling

equity

The fair distribution of economic benefits

Economists believe that an activity should be continued up to the point where?

The marginal benefit is equal to the marginal cost

The idea of increasing marginal opportunity costs illustrates an important economic concept:

The more resources already devoted to an activity, the smaller the payoff to devoting additional resources to that activity.

What is the opportunity cost of spending more money to finds a cure for heart disease?

The reduction of funding for research to cure other diseases

The principle of increasing marginal opportunity cost states that the more resources devoted to an activity, the ..... the payoff devoting additional resources too that activity.

The smaller the pay off

Economics

The study of choices consumers, business managers, and government officials make choices

Macroeconomics

The study of the economy as a whole.

people respond to economic incentives

This is why banks to not upgrade security

Scarcity

Unlimited wants exceed limited resources

How should policy makers determine the amount of money that should be allocated for research curing heart disease? they should base their decision on

Whether the last dollar devoted to research on heart disease results in more benefit than the last dollar spent on research for curing other diseases

how to create more future growth

allocate more resources to capital goods

Economic inefficiency is shown with?

points inside the production possibilities curve.

We show economic efficiency with?

points on the production possibilities frontier

it would be more moral to reduce pollution

taking the cost into account because money spent on pollution reduction is not available for other worthy activities

People are rational

use all available information to make a decision

The opportunity cost of teslas investment in a new battery factory in Nevada is?

what the company considered to be the best foregone option to the factory