Microeconomics

productive efficiency

occurs when a good or service is produced at the lowest possible cost.

Every society faces​ trade-offs because we live in a world of scarcity. Suppose a​ student-athlete has the opportunity to earn ​$600,000 next year playing for a minor league baseball​ team, ​$500,000 next year playing for a European professional football​ team, or​ $0 returning to college for another year. The opportunity cost of the​ student-athlete returning to college next year is

$600,000

A hypothesis in an economic model is

1.a statement that may be either correct or incorrect about an economic variable. 2.tested before it can be accepted​ (or not​ rejected). 3.usually about a causal relationship.

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

BOTH - an emitted variable - reverse causality

Harry Fletcher is a market analyst at an automobile firm. He forms a hypothesis that an increase in advertising will increase the demand for the​ firm's cars. Which of the​ following, if​ true, may result in the rejection of his​ hypothesis?

Car buyers base their purchasing decisions on independent reviews.

Alzuria is a developing economy. With trade and​ liberalization, the country has now seen substantial development in the private sector.​ However, government intervention in certain markets remains strong. The banking sector has a good mix of both private banks and those called​ "government undertakings," or public sector banks. Consumers are becoming increasingly aware of the difference in the quality of service provided by the private and the public sector banks. Competition among private banks has ensured that their employees adhere to high standards of customer service. Their public sector​ counterparts, however, do not appear to be making an effort to improve their customer service. Which of the​ following, if​ true, would explain the rationale behind continued patronage despite the bad service provided by public sector banks in​ Alzuria?

Deposits with public sector banks are insured unlike those with private banks.

Jonathan Baker is a market analyst. He works at a firm that is one of the few producers of good X. Jonathan formulates a hypothesis that an increase in advertising will increase the demand for this​ firm's products by attracting new customers. Which of the​ following, if​ true, would suggest that​ Jonathan's hypothesis will​ hold?

Even​ brand-loyal consumers can be convinced to change their preferences.

Terbia is a closed​ economy, which has been growing at a very slow pace over the last decade. In order to boost economic​ growth, the government removed trade barriers earlier this year and increased its spending on the economy. These moves were expected to generate employment and increase economic growth.​ However, unemployment did not decline as much as expected. Which of the​ following, if​ true, can explain this​ outcome?

Imported varieties of many goods were cheaper than the domestically produced varieties.

Harry Fletcher is a market analyst at an automobile firm. He formed a hypothesis that an increase in advertising would increase demand for the​ firm's cars. The ad campaign ran for a period of six months.​ However, the results were not as positive as Harry had anticipated. Which of the​ following, if​ true, can explain this​ outcome?

Interest rates increased substantially during this period.

Julia​ Paul, an analyst at a research​ institute, lives very close to her office and walks to work every day.​ Meanwhile, her​ colleague, Amanda​ Jones, dislikes the fact that it takes her almost an hour to commute to work every day. As a​ result, when Julia decides to move to a suburb farther​ away, Amanda is very surprised. Which of the​ following, if​ true, would explain​ Julia's behavior?

Julia saves more in rent than she spends on commuting to work.

The economy of East Paragon has been experiencing deflation for the last few​ months, with prices of goods and services declining. Because firms are charging lower​ prices, they expected higher sales.​ However, consumption spending did not increase​ much, resulting in substantial losses for these firms. Which of the​ following, if​ true, explains why consumers did not increase consumption in spite of falling​ prices?

Most people were expecting prices to decline further.

Trade-offs force society to make​ choices, particularly when answering the following three fundamental​ questions:

One, what goods and services will be​ produced? Two, how will the goods and services be​ produced? Three, who will receive the goods and services​ produced?

Microsoft charges a price of​ $599 for a copy of Windows 7. Is this pricing decision​ rational?

When we assume the managers at Microsoft have used all available information and weighed all known benefits and costs, we are assuming rationality.

A market is a group of (blank)of a good or service and the institution or arrangement by which they come together to trade.

buyers and sellers

Societies organize their economies in two main ways to answer the three questions of​ what, how, and who. A society can have a (blank) economy in which the government decides how economic resources will be allocated. Or a society can have a (blank) economy in which the decisions of households and firms interacting in markets allocate economic resources.

centrally planned; market

Consumers, Firms, Governments

decide(s) what goods and services will be produced.

Suppose, in an effort to prevent the population from​ declining, Italy begins offering new mothers extended periods of paid family leave from work​ and, consequently, the birthrate per woman increases. If​ so, then this could best be characterized as an example of people responding to

economic incentives

Xylo​ Inc., a manufacturer of domestic​ appliances, lowered the prices of its​ products, expecting an increase in demand and sales by at least 20 percent.​ However, it was observed that sales increased by only 8 percent. Which of the​ following, if​ true, can explain this​ outcome?

he government increased personal income tax rates earlier this year.

positive analysis

is concerned with what is​

normative analysis

is concerned with what ought to be

Economics

is the study of the choices people make to attain their​ goals, given their scarce resources.

Economics is a social science because

it applies the scientific method to the study of the interactions among individuals. it is based on studying the actions of individuals. it considers human behavior—particularly ​decision-making behavior.

Firms choose how to produce the goods and services they sell. In many cases firms face a tradeoff between using more workers or using more machines. For Example,

many times in the past several​ decades, firms may have chosen between a production method in the United States that uses fewer workers and more machines and a production method in China that uses more workers and fewer machines.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

marginal benefit equals marginal cost

Any model is based on making assumptions because

models have to be simplified to be useful. we cannot analyze an economic issue unless we reduce its complexity.

Allocative efficiency

occurs when production is in accordance with consumer preferences.

When economists develop models designed to explain the choices people​ make, they generally assume that

people are rational

Economics is about (blank) which measures the costs and benefits of different courses of action

positive analysis

Suppose an analyst estimates how many jobs have been lost from free trade laws. This is an example of

positive analysis

Japan has a market economy. As such, Japan's economy {relative to centrally planned economies] tends to result in

productive efficiency and allocative efficiency but not necessarily equity.

A large corporation that runs nursing homes estimates that changes to Medicare will result in lower payments by Medicare to nursing homes for​ short-term stays by patients that require therapy or care upon leaving hospitals. Assume the corporation is considering expanding the number of​ "beds" it offers at its nursing homes. Given the changes to​ Medicare, if the marginal benefit of offering an additional bed is ​$8,000 and the marginal cost is ​$5,000 per​ bed, then the corporation

should offer additional beds

Opportunity cost

the highest valued alternative that must be given up to engage in an activity

​Trade-offs force society to answer questions such as what goods and services will be​ produced, how will the goods and services be​ produced, and who will receive the goods and services produced. Which of the following countries has an economy where households and firms make these​ decisions?

Canada

Alzuria is a developing economy. With trade and​ liberalization, the country has now seen substantial development in the private sector.​ However, government intervention in certain markets remains strong. The banking sector has a good mix of both private banks and those called​ "government undertakings," or public sector banks. Consumers are becoming increasingly aware of the difference in the quality of service provided by the private and the public sector banks. Competition among private banks has ensured that their employees adhere to high standards of customer service. Their public sector​ counterparts, however, do not appear to be making an effort to improve their customer service. Which of the​ following, if​ true, would explain the careless attitude of employees in public sector​ banks?

Employees in the public sector have greater job security than those in the private sector.

Best​ Goods, one of the leading department store​ chains, offers goods at low prices. It recently opened many new stores across the country. After successfully setting up stores in most major​ cities, Best Goods faced substantial opposition in the city of​ Joberg, where lobbyists for smaller general stores​ (local businesses) opposed its entry. These lobbyists argued that Best Goods would put many local stores out of business and would also increase income inequality and unemployment in the city. Which of the​ following, if​ true, would weaken the stand of the​ lobbyists?

It is common for traditional retailers to modernize and successfully compete with organized retailing.

Best​ Goods, one of the leading department store​ chains, offers goods at low prices. It recently opened many new stores across the country. After successfully setting up stores in most major​ cities, Best Goods faced substantial opposition in the city of​ Joberg, where lobbyists for smaller general stores​ (local businesses) opposed its entry. These lobbyists argued that Best Goods would put many local stores out of business and would also increase income inequality and unemployment in the city. Which of the following can most reasonably be concluded from the information given in the​ question?

Lobbyists believe that those who lose jobs​ won't find alternative opportunities in the short term.

Which of the following is not a step economists follow when developing an economic​ model?

Make value judgments to be proven or disproven.

Best​ Goods, one of the leading department store​ chains, offers goods at low prices. It recently opened many new stores across the country. After successfully setting up stores in most major​ cities, Best Goods faced substantial opposition in the city of​ Joberg, where lobbyists for smaller general stores​ (local businesses) opposed its entry. These lobbyists argued that Best Goods would put many local stores out of business and would also increase income inequality and unemployment in the city. Which of the​ following, if​ true, would strengthen the stand of the​ lobbyists?

The quality of goods offered at Best Goods is usually the same quality as those offered at local stores.

mixed economy

an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

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

Examining how firms decide what prices to charge for the products they sell is most likely an issue in

microeconomics

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

Equity is

the fair distribution of economic benefits.

Macroeconomics is

the study of the economy as a​ whole, including topics such as​ inflation, unemployment, and economic growth.