Macro Chapter 1

How do market economies ultimately determine what goods and services are​ produced, how the goods and services will be​ produced, and who will receive the goods and​ services?

Consumers determine what goods and services are​ produced, firms determine how to produce​ them, and markets determine who will receive them.

Terbia is a closed​ economy, which has been growing at a very slow pace over the last decade. In order to boost economic​ growth, the government removed trade barriers earlier this year and increased its spending on the economy. These moves were expected to generate employment and increase economic growth.​ However, unemployment did not decline as much as expected.

Imported varieties of many goods were cheaper than the domestically produced varieties.

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

Macroeconomics

Which of the following is not a step economists follow when developing an economic​ model?

Make value judgments to be proven or disproven.

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

Productive efficiency Allocative efficiency

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.

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

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.

centrally planned market

To develop a model that will answer economic​ questions, economists​ typically:

first make simplifying​ assumptions, then formulate a​ hypothesis, test the​ hypothesis, and finally revise the model if necessary.

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.

Economics is a social science because

it is based on studying the actions of individuals. it is based on studying the actions of individuals. it considers human behavior—particularly ​decision-making behavior.

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.

Economic models​ are:

simplified versions of reality designed to analyze​ "what is" to explain human decision making in any context.

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.

​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?