Economics 1430
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.
What is economic efficiency?
Economic efficiency is where consumer surplus and producer surplus are maximized.
What do economists mean by scarcity?
Economists mean that unlimited wants exceed limited resources.
Can these two countries gain from trading oil and fish oil?
These countries cannot gain from trade because neither has a comparative advantage producing either good.
Which country has an absolute advantage in producing tacos?
United States
When is market failure likely to arise?
When it is difficult to enforce property rights and when property rights are incomplete
Productive efficiency means that
a good or service is produced at the lowest possible cost.
A hypothesis in an economic model is
all of the above
The parties involved in an externality have an incentive to reach an efficient solution because
both parties become better off when an efficient solution is reached
Economic data is used
test models
Opportunity cost is
the highest valued alternative that must be given up to engage in an activity.
Does the decrease in the total number of hours of house work long dash from 36 to 25.4 long dash mean that families are willing to live in messier homes?
No, because there are more labor saving devices so less time is required.
Suppose the United States is currently producing 40 tons of hamburgers and 12 tons of tacos and Mexico is currently producing 8 tons of hamburgers and 10 tons of tacos. If the United States and Mexico each specialize in producing only one good (the good for which each has a comparative advantage), then a total of nothing
12,8
Refer to the graph to the right. What is the opportunity cost of moving from point B to point C?
20 sedans
The government seeks to protect intellectual property rights by granting
A and B only.
What is an externality?
A benefit of cost that affects someone who is not directly involved in the production or consumption of a good or service
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.A
What is a free market?
A free market is one where the government does not control the production of goods and services.
What is a market failure?
A market failure is when the market fails to produce the efficient level of output.
How do property rights affect externalities and market failure?
Externalities and market failure will result from incomplete property rights.
Writing in the New York Times, Michael Lewis argued that "...a market economy is premised on a system of incentives designed to encourage an ignoble human trait: self-interest." Source: Michael Lewis, "In Defense of the Boom." New York Times, October 27, 2002. What incentives does a market system provide to encourage self-interest?
Financial reward.
What are the two main categories of participants in markets?
Firms and households.
What is a good example of a good or service having the effects of a positive externality?
Medical Research and Education
Which country has a comparative advantage in producing tacos?
Mexico
Who has the comparative advantage LOADING... in producing oil?
Neither country has a comparative advantage producing oil because their opportunity costs of producing oil are equal.
Which of the following is not scarce according to the economic definition?
None of the above.
What type of economic analysis is concerned with the way things ought to be?
Normative Analysis
Whether carried out by an individual or a country, production beyond the production possibilities frontier
Not physically possible
Ford assembles some cars in Mexico because the lower wages the company pays to Mexican workers and the lower prices it pays for auto parts in Mexico reduces Ford's costs. This is an example of Ford reacting to which of the three key economic ideas?
People respond to economic incentives.
is concerned with what is, and positive analysis neutral analysis normative analysis is concerned with what ought to be. Economics is about positive analysis neutral analysis normative analysis , which measures the costs and benefits of different courses of action.
Positive analysis, normative analysis, positive analysis
occurs when a good or service is produced at the lowest possible cost. Allocative efficiency Voluntary exchange Productive efficiency occurs when production is in accordance with consumer preferences.
Productive efficiency, Allocative efficiency
Externalities affect the economic efficiency of a market equilibrium by causing a difference between
The private cost of production and the private benefit of consumption
In what ways does a free market economy differ from a centrally planned economy? Unlike a free market economy,
centrally planned economies have extensive government controls.
What is comparative advantage?
the ability to produce a good or service at a lower opportunity cost than other producers
The private benefit is ________, while the social benefit is ________.
the benefit received by the consumer of a good or service; the total benefits from consuming the good or service
Macroeconomics is the study of
the economy as a whole, including topics such as inflation, unemployment, and economic growth.
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.
In a free market, the actions people take are largely determined by
the motivation of financial reward
How do externalities LOADING... affect markets? If a positive externality in consumption is present in a market, then
the private benefit from consumption will be different than the social benefit from consumption.
Property rights are
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
A positive externality causes
the social benefit from consuming the good to be greater than the private benefit.
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.
Economists use models
to answer questions and analyze issues
Is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? A country without an absolute advantage in producing a good
will have a comparative advantage if it has a lower opportunity cost of producing that good.
With respect to consumption, individuals and countries
can, through trade, consume beyond their production possibilities frontiers.
Centrally planned economies allocate resources based on decisions by ▼ households and firms government , while market economies answer these questions through decisions made by ▼ households and firms government
government, households and firms
If a country has a comparative advantage in the production of a good, then that country
has a lower opportunity cost in the production of that good.ha
When we graph the relationship between two variables, we often want to draw conclusions about whether changes in one variable are causing changes in the other variable. Doing so, however, can lead to incorrect conclusions. Reasons for drawing incorrect conclusions about cause and effect include
reverse causality, an omitted variable, both a and b
Firms are likely to produce more of a good or service when its price ▼ rises falls and less of a good or service when its price ▼ rises falls
rises, falls
Which of the following events would create economic growth, that is, shift the production possibilities frontier outward?
All of the above
Which of the following steps should you follow when using a formula?
All of the above are steps you should follow when using a formula.Al
What is an example of a good or service having the effects of a negative externality?
Cigarette smoking
The basis for trade is ▼ absolute comparative advantage.
Comparative advantage
decide(s) what goods and services will be produced.
Consumers, firms, and government
Which participants are of greatest importance in determining what goods and services are produced?
Households.
The Coase Theorem states that
If transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities
Which of the following covers the study of topics such as inflation or unemployment?
Macroeconomics
Which of the following are examples of intellectual property?
SoftwareSo Your answer is correct.B. Ideas for new products or new production techniques Your answer is correct.C. Books and films
The basis for trade is comparative advantage, not absolute advantage.
T
What is absolute advantage?
The ability to produce more of a good or service than competitors using the same amount of resources.
What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy?
The country is operating on its production possibilities frontier.Th
What do economists mean by "an economically efficient level of pollution"? The economically efficient level of pollution is that amount where
The marginal cost of pollution reduction equals the marginal benefit of pollution reduction
During the 1928 presidential election campaign, Herbert Hoover, the Republican candidate, argued that the United States should only import those products that could not be produced here. Do you believe that this would be a good policy? Explain.
This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage.
Which of the following best describes scarcity?
Unlimited wants exceed the limited resources available.
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?
Economics is a social science because
all of the above
Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a ▼ centrally planned mixed market economy in which the government decides how economic resources will be allocated. Or a society can have a ▼ centrally planned mixed market economy in which the decisions of households and firms interacting in markets allocate economic resources.
centrally planned, market
What is the basis for trade?
comparative advantage
The British historian Thomas Macaulay once remarked that copyrights are "a tax on readers." Copyrights are a 'tax' on readers in the sense that
copyrights limit of the supply of related creative work which results in higher prices.
If copyrights are a 'tax' on readers, governments provide a legal framework to enforce them because
copyrights provide needed protection for authors and creators of movies or other artistic works
A(n) ▼ politician manager entrepreneur is someone who operates a business, bringing together the factors of production long dashlabor, capital, and natural resources long dash to produce goods and services.
entrepreneur
Scarcity is central to the study of economics because it implies that
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 do economists mean by the word "marginal"?
extra or additional
In economic terminology, the inputs used to produce output are referred to as
factors of production.
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.
In the United States, who receives the goods and services produced depends largely on
how income is distributed
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.
The level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. This is a macroeconomic microeconomic 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 macroeconomic microeconomic issue.
macroeconomic, microeconomic
Which one of the following factors helps determine the marginal cost of reducing crime?
resources devoted to courts.
Efficiency means that goods are distributed in a way that , while equity means that goods are distributed in a way that .
maximizes benefits to society, is fair
The relationship between two variables is positive when ________, and the relationship between two variables is negative when ________.
one variable increases and the other increases; one variable increases and the other decreases
Which one of the following factors helps determine the marginal benefit of reducing crime?
personal injury from crime.
The Scottish philosopher Adam Smith argued in 1776 that
prices would do a better job of coordinating the activities of buyers and sellers than guilds could.
Absolute advantage is the ability of an individual, a firm, or a country to
produce more of a good or service than competitors using the same amount of resources.pr