Macroeconomics Chapter 1

True

(T-or-F) Competition forces firms to produce and sell products as long as the marginal benefit to consumers exceeds the marginal cost of production

False

(T-or-F) Economic models portray reality in all its minute details

True

(T-or-F) Every individual, no matter how rich or poor, is faced with making trade-offs.

False

(T-or-F) Only individuals face scarcity; firms and the government do not

False

(T-or-F) There is much more disagreement among economists over positive economic analysis than over normative economic analysis.

What will be produced; how something will be produced

Allocative efficiency best explains _____, and productive efficiency best explains ______

Model

An economic ____ is a simplified version of some aspect of economic life used to analyze an economic issue

even though people may not behave rationally all the time

Economists assume that rational behavior is useful in explaining choices people make

Marginal benefit equals the marginal cost

Economists reason that the optimal decision is to continue any activity up to the point where the....

The government decides because North Korea is a centrally planned economy

How are the fundamental economic decisions determined in North Korea?

Scarcity

In economics, choices must be made because we live in a world of

economic benefits are distributed fairly

In economics, the term "equity" means

Marginal

In economics, the term ____ means "additional" or "extra"

weighing the costs and the benefits of a decision before deciding if it should be pursued

Making optimal decisions "at the margin" requires...

competition and voluntary exchange

Markets promote....

How households and firms make choices

Microeconomics is the study of...

Trade-Offs

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of...

Market

The term ____ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade.

Allocative Efficiency

When production reflects consumer preferences, _____ occurs.

Productive Efficiency

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

Who will receive the goods and services produced

the distribution of income primarily determines which of the fundamental economic questions?