Economics chapter 1

The two opposing sets of answers are offered by alternative economy​ systems:

1) comman/control 2)price system

what are the 3 economic questions

1)For whom will the items be​ produced? 2)How will the items be​ produced? 3)What and how much will be​ produced?

name three things that represent a good economic model

In comparing two​ models, the simpler one is​ better, other things equal. Models are used to explain and predict human behavior. A model is a simplified representation of the real world.

bounded rationality

Individuals make​ short-run choices that are not consistent with their​ long-term goals. -so they use the "rule of thumb"

command/control economic system is

The economic system in which a government establishes ownership of resources and issues rules for how to manage the production of products is best described as (KINGS,QUEENS)

price system economic system is (MARKET SYSTEM)

The economic system in which individuals and families own all of the scarce resources used in​ production, decide how and what to​ produce, and how many products to​ produce

One reason that economists use microeconomics as the basis of macroeconomic analysis is

all choices are made by individuals and firms

economic way of thinking

an analytical framework that helps ppl make better decisions to avoid Random choices

economics assumes two things

assumes individuals are rational and respond to different incentives.

most economic systems in the world use

both command and price system (MIXED Economiccs)

Economic models relates to the way ppl ACT and..

can be used to explain or predict economic phenomena.

most modesl use the ____ which means

ceteris paribus assumption all things are helad equal

The concept of self interest assumes that individuals can only further their goals at the expense of other individuals.

false

People may appear to use rules of​ thumb, as suggested by the assumption of bounded​ rationality, even though they may really be behaving in a manner suggested by the rationality assumption if

hey face persistently predictable range of choices for a period of time.

The ceteris paribus assumption mean

other things equal

what is the rule of thumb used during bounded rationality

people can not examine every possible choice available to them.

rationality assummption used in econimics states that

people respond to incentives

rationality assumption

ppl dont intentionally make bad decison that will make them worse off

Under this​ assumption, the individual is assumed to act as though he or she systematically pursues​ self-motivated interest.

rationality assumption

empirical test

relies on the collection of real world data in order to assess the usefulness of a model.

models/theories

simple representation of real world used as basis for predictions or explanations

economics

social science, study of how people allocate their limited resources in an attempt to satisfy their unlimited wants

economic system

society insititutional mechanims for determining the way in which scarce resources are used to satisfy human desires

behavioral economics

studies consumer behavior

macroeconomics

study of behavior of economy as a whole -unemplyment, price level, national income, rate of inflation, yearly growth in the output of goods/service -deals with aggregates

microeconomics

study of decision making by individuals -household and firms

the purpose of economics is to

study people choices

resources

things used to produce goods and services to satisfy ppl wants and have value

aggregate

total output in an economy, amount/quantities --aggregate are a result of choices made by indiviuals/firm

Economics is a science since the study of economics uses models and theories that are subject to empirical testing.

true

much of human behavior can be explained in terms of how individuals respond to changing incentives over time.

true

Positive Economics

use the word "IF A then B" -makes a scientific or descriptive statement or scientific predictions

Normative economics

use the word "SHOULD BE"/"OUGHT TO BE" -involves value -about econmics/ooutcomes good or bad

wants

what people would buy if their incomes were UNLIMITED