Chapter 1 - Economics: Foundations and Models

A hypothesis in an economic model is

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

Economics is a social science because

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

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

A. reverse causality. B. an omitted variable.

Any model is based on making assumptions because

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

Which of the following covers the study of topics such as inflation or​ unemployment?

Macroeconomics

​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 have weighed all known benefits and​ costs, we are assuming rationality.

_____ occurs when production is in accordance with consumer preferences

allocative efficiency

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

buyers and sellers

A society can have a _____ economy in which the government decides how economic resources will be allocated.

centrally planned

_______ decide what goods and services will be produced

consumers, firms, and government

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

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.

Firms choose how to produce the goods and services they sell. In many​ cases, firms face a​ trade-off 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.

Or a society can have a _____ economy in which the decisions of households and firms interacting in markets allocate economic resources

market

A _____ economy is 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

mixed

All demand curves have a _____ slope

negative

Economics is about ____ analysis, which measures the costs and benefits of different courses of action.

positive

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

productive efficiency

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.

Opportunity cost is

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

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.

Macroeconomics is

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

Which of the following shows a negative linear relationship?

y= 64 - 4.5x