Micro ch.1

________ have a horizontal and a vertical axis and are used in economics to illustrate relationships between two economic variables.

Two-dimensional graphs

Voluntary exchange between buyers and sellers generates ________ in a market economy.

allocative efficiency

The revenue received from the sale of ________ of a product is a marginal benefit to the firm.

an additional unit

Economists assume that individuals

are rational and respond to incentives.

Arlene quits her $125,000-a-year job to take care of her ailing parents. What is the opportunity cost of her decision?

at least $125,000

Markets promote

competition and voluntary exchange.

Economists assume that rational behavior is useful in explaining choices people make

even though people may not behave rationally all the time.

Productive efficiency is achieved when

firms produce goods and services at the lowest cost.

Macroeconomics is the study of

how households and firms make choices.

Microeconomics is the study of

how households and firms make choices.

In economics, the term ________ means "additional" or "extra."

marginal

Economists reason that the optimal decision is to continue any activity up to the point where the

marginal benefit equals the marginal cost.

The extra cost associated with undertaking an activity is called

marginal cost.

A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes?

marginal revenue

The highest valued alternative that must be given up to engage in an activity is the definition of

opportunity cost.

In economics, choices must be made because we live in a world of

scarcity.

Allocative efficiency is achieved when firms produce goods and services

that consumers value most.

By definition, economics is the study of

the choices people make to attain their goals, given their scarce resources.

Marginal analysis involves undertaking an activity

until its marginal benefits equal marginal costs.

Making optimal decisions "at the margin" requires

weighing the costs and benefits of a decision before deciding if it should be pursued.