Eco2013 Chapter 1

Voluntary Exchange

A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction.

Scarcity

Although our wants are unlimited, the resources available to fulfill those wants are limited.

Comparative Advantage

An individual, firm, or a country that can produce the good or service at the lowest opportunity cost

the choices people make to attain their goals, given their scarce resources.

By definition, economics is the study of

Which of the following statements is true about competition in a market?

Competition forces firms to produce and sell products as long as the marginal benefit to consumers exceeds the marginal cost of production.

the likelihood that the average person will lose her job due to outsourcing is very small compared to losing her job due to other causes.

Consider the following two factors: a. A study conducted by Forrester Research estimates that between 2000 and 2015, 3.3 million jobs in the United States will have been outsourced. b. Over this same period, the number of jobs expected to be created is more than 450 million and the number of jobs due to all causes is estimated at 430 million. These statements suggest that

producing more of one good means less of another good can be produced.

Every society faces economic tradeoffs. This means

Which of the following is a normative economic statement?

Fashion designers should be allowed to copyright designs to promote innovation.

the accumulated skills and training workers have.

Human capital refers to

as long as the marginal benefit it receives is just equal to or greater than $200.

If the marginal cost of producing a television is constant at $200, then a firm should produce this item

What is an economic model?

It is a simplified version of some aspect of economic life used to analyze an economic issue.

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

Making optimal decisions "at the margin" requires

Capitals

Man-made resources used to produce other goods and services.

until its marginal benefits equal marginal costs.

Marginal analysis involves undertaking an activity

Market Economy

Most Economic decisions are made by consumers and firms.

Centrally Planned Economy

Most economic decisions are made by the government.

Mixed Economies

Most economic desicions are made by consumers and firms but in which the government also pays a signifcant role.

Productive Efficiency

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

Which of the following is correct about the economic decisions consumers, firms, and the government have to make?

Only individuals face scarcity; firms and the government do not.

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

Opportunity cost is defined as

Trade-Offs

Producing more of one good or service means producing less of another good or service.

at least $60,000

Ted quits his $60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision?

has always existed and will continue to exist.

The basic economic problem of scarcity

microeconomics.

The branch of economics which studies how households and firms make choices, interact in markets and how government attempts to influence their choices is called

macroeconomics

The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called

Opportunity Cost

The highest-valued alternative that must be given up to engage in that activity.

is a marginal benefit to the firm.

The revenue received from the sale of an additional unit of a product

scarcity

The study of economics arises due to

Microeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

Economics

The study of the choices consumers, business managers, and government officials make to attain their goals, given their scarce resources.

Macroeconomics

The study of the economy as a whole, including topics such as inflation, un-employment, and economic growth.

a group of buyers and sellers of a product and the arrangement by which they come together to trade.

The term "market" in economics refers to

The three fundamental questions that any economy must address are

The three fundamental questions that any economy must address are

an additional or extra

What does the term "marginal" mean in economics?

productive efficiency

When goods and services are produced at the lowest possible cost, ________ occurs.

They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.

Which of the following best describes an assumption economists make about human behavior?

competition among sellers

Which of the following generates productive efficiency?

If the price of gasoline rises, a smaller quantity of it will be bought.

Which of the following is a positive economic statement?

Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.

Which of the following is correct about the economic decisions consumers, firms, and the government have to make?

whether or not consumers will buy its products

Which of the following is not an example of an economic tradeoff that a firm has to make?

assumptions

Which of the following is part of an economic model?

Economic resources include financial capital and money.

Which of the following statements about economic resources is false?

Production Possibilities Frontier (PPF)

a curve that shows the maximum attainable combinations of two products that may be produced with available resources.

Economic Models

are simplified versions of reality used to analyze real-world economic situations.

Marginal

extra or additional.

Economic Growth

illustrated by shifting a production possibilities frontier outward.

Positive Analysis

is concerned with what is.

Normative Analysis

is concerned with what ought to be.

entrepreneur

is someone who operates a business.

Economic Variable

is something measurable that can have different values, such as the wages of software programmers.

Product Markets

markets for goods and services, such as computers and medical treatment.

Factor Markets

markets for the factors production. such as labor, capital, nautural resources, and entrepreneurial ability.

Allocative efficiency

occurs when production corresponds with consumer prefences.

Absolute Advantage

producing more of that good or service using the same amount of resources.

A circular-flow diagram

shows how participants in oriduct markets and factor markets are linked.

free market

the government does not control the production.

Which of the following is counted as "capital" in economics?

the machines workers have to work with

Technology

the processes used to produce goods and services.

property rights

the rights of individuals and firms to use their property.

Equity

usually involves a fair distribution of economic benefits. Government policy makers often face a trade-off between equity and efficiency.