Econ ch.1

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

Macroeconomics examines

the economy as a whole, such as how rapidly the economy grows

which participants are of greatest importance in determining what goods and services are produced? - The government - Firms - Entrepreneurs - The financial sector - Households

Households.

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.

Productive efficiency means that

a good or service is produced at the lowest possible cost

How can a country gain from specialization and trade?

A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services

What is the basis for trade?

Comparative Advantage

A primary difference between macroeconomics and microeconomics is

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

what type of economic analysis is concerned with the way things ought to be? - Rational Behavior - Marginal Analysis - Normative Analysis - Positive Analysis

Normative Analysis

Macroeconomics is

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

Economists assume that people are rational in the sense that!!

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

which of the following best describes scarcity? - Markets cannot properly allocate resources - Unlimited wants exceed the limited resources available - Wants cannot be fulfilled and thus all goods must be rationed - Prices of goods are very high

Unlimited wants exceed the limited resources available

Suppose you win free tickets to a movie plus all you can eat at the snack bar for free. Would there be a cost to you to attend this movie?

Yes, because the movie's opportunity cost is equal to the highest-valued alternative that must e given up to attend the movie.

A production possibilities frontier (PPF) is

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

The primary difference between absolute and comparative advantage is

absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost

Economics is a social science because - it considers human behavior-particularly decison-making behavior. - it applies the scientific method to the study of the interactions among individuals. - it is based on studying the actions of individuals. - all of the above

all of the above

Scarcity is central to the study of economics because it implies that - economic agents are rational - every choice involves an opportunity cost - wants are unlimited - society must make decisions at the margin.

every choice involves an opportunity cost.

Allocative efficiency means that

every good or service is produced up to the point where marginal benefit is equal to marginal cost

what are two main categories of participants in markets?

firms and households.

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

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

people are rational

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

Economists use models - To disprove economic data - To answer questions and analyze issues. - To describe the real worlds exactly. - To prove that theories are true

to answer questions and analyze issues

Economic data is used - To test models - To prove that a model is true. - Only if all relevant data is available. - to take the place of an economic model

to test models

The three economic questions that every society must answer are??

what goods will be produced, how will they be produced, and who will receive the goods