Macroeconomics Chapter 1

____________ decide(s) what goods and services will be produced.

Consumers, firms, and government

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 hypothesis in an economic model is

all of the above a. tested before it can be accepted​ (or not​ rejected). b. usually about a causal relationship. c. a statement that may be either correct or incorrect about an economic variable. d. all of the above

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

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

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.

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

_________ 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.

positive analysis; normative analysis; positive analysis

_______ 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

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?

is the study of the choices people make to attain their​ goals, given their scarce resources.

Economics

Any model is based on making assumptions because

c. both a & b a. models have to be simplified to be useful. b. we cannot analyze an economic issue unless we reduce its complexity. c. both a & b

Economics is a social science because

d. all of the above a. it applies the scientific method to the study of the interactions among individuals. B. it considers human behaviorlong dash—particularly ​decision-making behavior. C. it is based on studying the actions of individuals. D. all of the above.

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

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.