Econ Homework 1

Economics is a social science because _________

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

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

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

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

A hypothesis in an economic model is __________

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

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

1. centrally planned 2. market

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, assuming rationality

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

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

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

Opportunity cost is

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

Macroeconomics is

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

________ is concerned with what is, and ___________ is concerned with what ought to be. Economics is about __________, which measures the costs and benefits of different courses of action

1. positive analysis 2. normative analysis 3. positive analysis

______ occurs when a good or service is produced at the lowest possible cost. _______ occurs when production is in accordance with consumer preferences

1. productive efficiency 2. allocative efficiency

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

1. what goods and services will be produced? 2. how will the goods and services be produced? 3. who will receive the goods and services produced?