Micro/Macro Economics Ch 1
productivity
(also called technology) the ability to combine economic resources; an increase in productivity causes economic growth even if economic resources have not changed, which would be represented by a shift out of the PPC.
Trina's Tropical Fish Store sells goldfish for $2 each and angelfish for $10 each. What is the opportunity cost of buying a goldfish?
1/5 of an angelfish
Which of the following is a positive economic statement? 1. The government should close income tax loopholes 2. Everyone should live at the same standard of living 3. U.S. firms should not be allowed to outsource production of goods and services 4. if the price of gasoline rises, a smaller quantity of it will be bought
4
The Stogie Shop, a cigar store in the mall, sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each. What is the opportunity cost of buying a hand-rolled cigar?
4 machine-made cigars
invention
A new product, system, or process that has never existed before, created by study and experimentation.
allocative efficiency
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it
who's behavioral assumption about humans was that people usually act in a rational, self-interested way.
Adam Smith's
Capital (Financial vs Physical)
Physical = computers, machines, etc. Financial = stocks, bonds, holdings of money, etc.
________ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production.
Competition
market economy
Economic decisions are made by individuals or the open market. --- households and firms interact
Economics
The study of how people seek to satisfy their needs and wants by making choices, given their scarce resources
Jewelry manufacturers produce a range of products such as rings, necklaces, bracelets, and brooches. What fundamental economic question are they addressing by offering this range of items?
What to produce?
The town of Harmonia gives away all 500 tickets to its annual Founder's Day Free Concert-in-the-Park to local residents. Each year, more than 500 people wish to attend the concert, so some of the residents who receive the free tickets sell them for as much as $75 each. Is a transaction where someone pays a resident $75 for a "free ticket" economically efficient?
Yes, it was a voluntary exchange that benefited both parties.
revenue
a firm's revenue is the total amount received for selling a good or service. (multiply price per unit by number of units sold)
production possibilities curve (PPC)
a graphical model that represents all of the different combinations of two goods that can be produced; the PPC captures scarcity of resources and opportunity costs.
market
a group of buyers and sellers of a particular good or service
Entrepreneur
a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.
productive efficiency
a situation in which a good or service is produced at the lowest possible cost
voluntary exchange
a situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction
centrally planned economy
an economy in which the government decides how economic resources will be allocated
firm, company, business
an organization that produces a good or service
marginal analysis
analysis that involves comparing marginal benefits and marginal costs
Economists assume that individuals
are rational and respond to incentives
Economics is the study of the ________ people make to attain their goals, given their _________ resources.
choices, scarce
Markets promote
competition and voluntary exchange.
Profit is the
difference between revenue and cost.
points on the PPC are
efficient
The ________ the sale of an additional unit of a product is a marginal benefit to the firm.
extra cost of
An ________ is represented by a rightward shift of the demand curve while an ________ is represented by a movement along a given demand curve.
increase in demand; increase in quantity demanded
Voluntary exchange ________ economic efficiency because neither the buyer nor the seller would agree to a trade unless ________.
increases; they both benefit
Points on the interior of the PPC are
inefficient
Economists reason that the optimal decision is to continue any activity up to the point where the
marginal benefit equals the 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
what is another economic term for the incremental revenue received from the sale
marginal revenue
In economics, the term ________ refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade.
market
If a straight line passes through the point x = 24 and y = 8 and also through the point x = 8 and y = 16, the slope of this line is
negative one-half.
here is much more disagreement among economists over ______ economic analysis than over ________ economic analysis.
normative, positive
The principle of _________ is that economic cost of using a factor of production is the alternative use of that factor that is given up.
opportunity cost
The slope of a production possibilities frontier measures the ________ of producing one more unit of a good.
opportunity cost
The machines that workers have to work with are considered
physical capital.
In a modern mixed economy, who decides what goods and services will be produced?
producers, consumers, and government
When goods and services are produced at the lowest possible cost, _________ occurs.
productive efficiency
Allocative efficiency is achieved when firms produce goods and services
that consumers value most.
Efficiency
the full employment of resources in production; efficient combinations of output will always be on the PPC.
The production possibilities frontier shows
the maximum attainable combinations of two products that may be produced in a particular time period with available resources
innovation
the practical application of an invention
Technology
the processes a firm uses to turn inputs into outputs of goods and services
A firm's technology may depend on which of the following factors
the skill of its managers the training of its workers the speed and efficiency of its equipment
A firm's technology may depend on which of the following factors?
the skill of its managers the training of its workers the speed and efficiency of its equipment
inefficient use (under-utilization) of resources
the underemployment of any of the four economic resources (land, labor, capital, and entrepreneurial ability); inefficient combinations of production are represented using a PPC as points on the interior of the PPC.
opportunity cost
the value of the next best alternative to any decision you make; for example, if Abby can spend her time either watching videos or studying, the opportunity cost of an hour watching videos is the hour of studying she gives up to do that.
Who receives the most of what is produced in a market economy?
those who are most willing and able to buy them
points beyond the PPC are
unattainable
Scarcity refers to the situation in which
unlimited wants exceed limited resources
Allocative efficiency best explains ________, and productive efficiency best explains ________.
what will be produced; how something will be produced
increasing opportunity costs
when the opportunity cost of a good increases as output of the good increases, which is represented in a graph as a PPC that is bowed out from the origin
constant opportunity costs
when the opportunity cost of a good remains constant as output of the good increases, which is represented as a PPC curve that is a straight line; for example, if Colin always gives up producing 2 fidget spinners every time he produces a Pokemon card, he has constant opportunity costs.