Macroeconomics Chap 1-3

The difference between a positive economic statement and a normative statement is that

A positive statement can be verified; a normative statement cannot

A tariff is

A tax on imports

In economics, "capital" refers to

Machines, buildings, tools, and knowledge

An example of a positive externality is

a homeowner's maintenance of a beautiful lawn because this creates a benefit for neighbors.

Efficiency refers to

getting the maximum possible output from available resources.

Suppose you have an hour before your nest class starts. You can either read a book, get something to eat, or take a nap. The opportunity cost of getting something to eat is

impossible to determine because the most preferred alternative is not known.

The opportunity cost of going to college is best measured by the

income forgone by not working, plus tuition

In economics, marginal means

incremental or decremental

An economic system

is a set of social institutions and mechanisms organized to answer the three economic questions.

A normative economic statement

is a statement of what ought to be, not what is

The assumption that individuals act rationally implies that

people implicitly calculate the costs and benefits of an activity to decide if it is worthwhile

Goods and services are exchanged in

product markets

The labor market is an example of a

resource market

Opportunity cost exists because

resources are scarce, but wants are unlimited.

Opportunity cost is always measured in dollar terms, rather than in terms of real goods and services. T/F

False

Opportunity cost is the difference between the benefits and cost of a choice. T/F

False

Public goods are both rival and nonexclusive. T/F

False

The Sultan of Brunei, one of the richest people in the world, does not face the problem of scarcity. T/F

False

The opportunity cost of college is the same for all students who are receiving full-tuition scholarships. T/F

False

Under a regressive income tax system, individuals with higher incomes pay higher marginal tax rates. T/F

False

Suppose you have a choice of working full-time during the summer or going full-time to summer school. Summer tuition and books are $2,200. If you worked, you could make $7,000. Your rent is $1,000 for the summer, regardless of your choice. The opportunity cost of going to summer school is, therefore,

$9,200

The other-things-constant assumption

Allows the economist to make useful predictions

What is a service?

An intangible activity that satisfies human wants.

Opportunity cost is defined

As the value of the best alternative not chosen

Don can produce 10 pens or 20 pencils in one hour while Bob can produce 5 pencils or 15 in one hour. Which of the following statements is correct?

Bob has a comparative advantage over Don in the production of pens.

Because people's wants are unlimited, but resources are scarce,

Choices must be made

A rational individual would make charitable contributions only if such contributions receive favorable tax treatment. T/F

False

Economists believe that individuals respond in a predictable way to changes in costs and benefits. The term that best describes this belief is

Rational behavior

If an economy is operating at a point inside the production possibilities frontier, then

Some of the nation's resources are unemployed

Adam Smith believed that people's pursuit of their own self-intrests

Tended to promote the general welfare

Melissa chooses a higher priced restaugnt 2 miles from her home over a cheaper restaurant 15 miles from home. What is the most likely explanation for her behavior?

The higher monetary cost of the more expensive restaurant is offset by the higher opportunity cost of the lower priced restaurant.

The opportunity cost of an activity is

The value of the best alternative not chosen.

A production possibilities frontier will shift outward if there is an improvement in technology. T/F

True

A rational decision maker compares the expected marginal cost to the expected marginal benefit of any activity. T/F

True

A rational decision maker engages in an activity if that activity is more attractive than the best alternative.

True

Comparative advantage is based on opportunity costs. T/F

True

Economic decision makers will continue to acquire information only as long as the expected benefit exceeds the expected additional cost of the information. T/F

True

Economics is best defined as the study of how individuals decide to use limited resources in an attempt to satisfy unlimited wants. T/F

True

The assumption of rational self-interest does not rule out the possibility of concern for other individuals. T/F

True

What is an example of a positive statement?

When the national unemployment rate is 7 percent, the unemployment rate for inner-city youth is often close to 40 percent.

The division of labor

allows tasks to be performed more efficiently

The term opportunity cost suggests that

because goods are scarce, in order to get some good you must give up some other good in return

The opportunity cost of an activity is best measured

by the value expected from the best alternative that is forgone.

The opportunity cost of an activity

depends on the individual's subjective values and opinions.

Scarcity

exists in all societies, applies when a resource is not freely available, means each individual must make choices, exists because people have wants that are unlimited relative to the availability of resources to satisfy those wants.

The economic question of what will be produced is

faced by all economies regardless of their wealth

The law of comparative advantage says that

the individual with the lowest opportunity cost of producing a particular good should produce it.

The opportunity cost of a particular activity

varies from person to person

Your opportunity cost of choosing a particular activity

varies, depending on time and circumstances