Microeconomics Test 1 Review

Which of the following statements about normative analysis is​ correct?

Normative analysis is concerned with what ought to be.

Today, which of the following countries has a centrally planned​ economy?

North Korea

Productive efficiency means that

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

Economists assume that the only reason people take the actions they do is in response to economic incentives

false

The federal government should spend more on AIDS research. This represents

normative analysis

The price of coffee at Starbucks is too high. This represents

normative analysis

Many universities and corporations offer a health wellness program that helps their employees improve or maintain their health and get paid​ (a relatively small​ amount) for doing so. The programs​ vary, but typically consist of employees completing a health​ assessment, receiving a healthy living​ program, and monitoring their monthly health activities. Corporations and universities are willing to pay employees to take care of themselves because a healthier workforce

-translates into lower ​ costs, in part by reducing​ illness-related absenteeism and premature retirements. -performs more​ efficiently, thereby improving overall productivity in the workplace.

Which of the following statements about a hypothesis is​ correct?

A hypothesis is a statement that could in principle turn out to be incorrect.A

When does allocative efficiency​ occur?

Allocative efficiency occurs when production is in accordance with consumer preferences.

Which of the following statements about an economic variable is​ correct?

An economic variable is something measurable that can have different values.

Why are models based on​ assumptions?

Because models have to be simplified to be useful.

Which of the following statements about microeconomics and macroeconomics is​ correct?

Microeconomics involves the study of how households and firms make choices.

Economics studies the actions of individuals.Ec

Microeconomics examines individual markets while macroeconomics examines the economy as a whole.

Consider the following​ statement: ​ "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes​ mistakes." What is the most correct response to this​ statement?

Economics has a lot of problems such as those that caused the Great Recession.

Which of the following statements about economics as a social science is​ correct?

Economics studies the actions of individuals.Ec

In a market​ system, what determines how goods and services will be​ produced?

Firms determine how goods and services will be produced.

Which of the following is a correct statement about a mixed​ economy?

In a mixed​ economy, most economic decisions are made in markets but the government plays a significant role in the allocation of resources.

Which of the following areas of economics studies issues such as whether government intervention is capable of reducing the severity of​ recessions?

Macroeconomics

Which of the following statements about microeconomics and macroeconomics is​ correct?

Macroeconomics is the study of the economy as a whole.Ma

Which of the following is not a step that economists use in developing a useful economic​ model?

Make a value judgement about the merits of the hypothesis.Ma

Which of the following areas of economics studies issues such as ways to reduce teenage​ smoking?

Microeconomics

What type of economic analysis is concerned with the way things ought to​ be?

Normative Analysis

Which of the following statements about positive analysis is​ correct?

Positive analysis is concerned with what is.

When does productive efficiency​ occur?

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

Which of the following statements about the idea that people are rational is​ correct?

The idea assumes that consumers and firms use all available information as they act to achieve their goals.Th

A market system prevents people from getting as many goods and services as they want due to which of the​ following?

Their income

Suppose economists develop an economic model and find that​ "it works great in​ theory, but it fails in​ practice." Which of the following should the economists do​ next?

They should revise the model in light of its failure to explain or predict real world events.

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 beWh ​ produced, how will they be​ produced, and who will receive the​ goods?

In a market​ system, how does society decide who will receive the goods and services​ produced?

Who receives the goods and services produced depends largely on how income is distributed.

Suppose you were building an economic model to forecast the number of people employed in U.S. manufacturing in 2024. Should your model take into account the possibility of changes in economic policy enacted by the president and​ Congress?

Yes, the model should account for economic policy because it could affect employment in manufacturing.

Alberto Chong of Georgia State University and several colleagues conducted an experiment to test the efficiency of government postal services around the world. They mailed letters to nonexistent businesses in 159 countries and kept track of how many of the letters were returned. Was this test most relevant to evaluating the productive efficiency or the allocative efficiency of these postal​ services? ​ This test that Albert Chong and his colleagues carried out was most relevant for evaluating the

allocative efficiency of these postal services because the test was designed to measure how often and how quickly the letters sent were returned.

Relative to a market​ economy, a​ centrally-planned economy would be expected to be

better at neither productive efficiency nor allocative efficiency because the absence of ​market-imposed competition negates the need of firms to satisfy consumer wants or produce using the​ lowest-cost methods.

How are economic resources allocated in a market​ economy?

by the decisions of households and firms interacting in markets

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

Scarcity is central to the study of economics because it implies that

every choice involves an opportunity cost.

Centrally planned economies allocate resources based on decisions by

government

market economies answer these questions through decisions made by

households and firms

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.

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.

equity means that goods are distributed in a way that

is fair

Consider an organization that exists to help the poor. The members of the organization are discussing alternative methods of aiding the​ poor, when a proponent of one particular method asserts​ that: ​"If only one poor person is helped with this​ method, then all our time and money would have been worth​ it." If you were a member of the​ organization, what reply best represents clear economic​ thinking?

ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people

Late in the​ semester, a friend tells​ you, ​"I was going to drop my psychology course so I could concentrate on my other​ courses, but I had already put so much time into the course I decided not to drop​ it." Is your​ friend's reasoning correct or​ incorrect?

incorrect

If a firm is productively and allocatively​ efficient

it earns profit

The Food and Drug Administration​ (FDA) is part of federal​ government's Department of Health and Human Services. Among its other​ functions, the FDA evaluates the safety and effectiveness of drugs and medical devices. FDA approval had to be granted before OraSure was allowed to market its home HIV test. In a centrally planned​ economy, the government decides how resources will be allocated. In a market​ economy, the decisions of households and firms interacting in markets allocate resources. The regulation of the production and sale of drugs and medical devices in the United States is an example of how resources are allocated in a

market economy because the drug​ development, and the resources allocated to the​ development, occurs in the market.

Efficiency means that goods are distributed in a way that

maximizes benefits to society

A firm operating in a market economy has a strong incentive to be productively efficient and allocatively efficient because the former enables it to _________, while the latter ensures it of ________ .

minimize production costs, ample revenues

A​ 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents

positive analysis

Rising paper prices will increase textbook prices. This represents

positive analysis

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.th

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals.th

Economists use models

to answer questions and analyze issues.

Economic data is used

to test models.

All individuals face a scarcity of time and need to make choices how to allocate it. Al

true

In a market​ system, how does society decide what goods and services will be​ produced?

​Consumers, firms, and the government determine what goods and services will be produced by the choices they make.

According to Forbes​ magazine, in 2017 Bill Gates was the​ world's richest person with wealth of​ $86 billion. ​Source: ​"The World's​ Billionaires," forbes.com​, March​ 20, 2017. Does Bill Gates face​ scarcity?

​​Yes, because even though​ billionaires' financial resources enable them to afford a much greater array of goods and services than those less​ wealthy, their financial resources are not infinite.

College football​ attendance, especially student​ attendance, has been on the decline. In​ 2016, home attendance at major college football games declined for the sixth consecutive year and was the lowest since 2000. The opportunity cost of engaging in an activity is the value of the best alternative that must be given up to engage in that activity. ​Source: Jon​ Solomon, "College Football Attendance in​ 2016: Crowds Decline for Sixth Straight​ Year," cbssports.com, December​ 16, 2016. Your opportunity cost of attending a game compared with the opportunity cost facing a college student 10 years ago is

​​higher, because more games are televised today.