Econ ch.1
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 examines
the economy as a whole, such as how rapidly the economy grows
which participants are of greatest importance in determining what goods and services are produced? - The government - Firms - Entrepreneurs - The financial sector - Households
Households.
scarcity implies that every society and every individual face trade-offs because scarcity means that
human wants are greater than what available resources can produce.
Productive efficiency means that
a good or service is produced at the lowest possible cost
How can a country gain from specialization and trade?
A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services
What is the basis for trade?
Comparative Advantage
A primary difference between macroeconomics and microeconomics is
Microeconomics examines individual markets while macroeconomics examines the economy as a whole
what type of economic analysis is concerned with the way things ought to be? - Rational Behavior - Marginal Analysis - Normative Analysis - Positive Analysis
Normative Analysis
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
which of the following best describes scarcity? - Markets cannot properly allocate resources - Unlimited wants exceed the limited resources available - Wants cannot be fulfilled and thus all goods must be rationed - Prices of goods are very high
Unlimited wants exceed the limited resources available
Suppose you win free tickets to a movie plus all you can eat at the snack bar for free. Would there be a cost to you to attend this movie?
Yes, because the movie's opportunity cost is equal to the highest-valued alternative that must e given up to attend the movie.
A production possibilities frontier (PPF) is
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
The primary difference between absolute and comparative advantage is
absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost
Economics is a social science because - it considers human behavior-particularly decison-making behavior. - it applies the scientific method to the study of the interactions among individuals. - it is based on studying the actions of individuals. - all of the above
all of the above
Scarcity is central to the study of economics because it implies that - economic agents are rational - every choice involves an opportunity cost - wants are unlimited - society must make decisions at the margin.
every choice involves an opportunity cost.
Allocative efficiency means that
every good or service is produced up to the point where marginal benefit is equal to marginal cost
what are two main categories of participants in markets?
firms and households.
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
When economists develop models designed to explain the choices people make, they generally assume that!!!
people are rational
Equity is
the fair distribution of economic benefits
opportunity cost is
the highest valued alternative that must be give up to engage in an activity
Economists use models - To disprove economic data - To answer questions and analyze issues. - To describe the real worlds exactly. - To prove that theories are true
to answer questions and analyze issues
Economic data is used - To test models - To prove that a model is true. - Only if all relevant data is available. - to take the place of an economic model
to test models
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