Ch. 1- The Pricipals And Practice Of Economics

Question 1

Things that people want, where the quantity that people want exceeds the quantity that is available.

Answer 1

Scarce resources.

Question 2

The situation of having unlimited wants in a world of limited resources.

Answer 2

Scarcity

Question 3

The study of how agents choose to allocate scarce resources and how those choices affect society.

Answer 3

Economics

Question 4

Describes what has happened or predicting what will happen.

Answer 4

Positive economics.

Question 5

Advises individuals and society on their choices.

Answer 5

Normative economics.

Question 6

The study of how individuals, households, firms and governments make choices, and how those choices affect prices, the allocation of resources and the well-being of other agents.

Answer 6

Microeconomics

Question 7

The study of the economy as a whole.

Answer 7

Macroeconomics

Question 8

Choosing the best feasible option given the available information.

Answer 8

Optimization.

Question 9

The special situation in which everyone is simultaneously optimizing. No one would personally benefit by changing his or her own behavior.

Answer 9

Equilibrium

Question 10

Analysis that uses data or that is evidence-based.

Answer 10

Empiricism

Question 11

Arises when some benefits must be given up in order to gain others.

Answer 11

Trade-offs

Question 12

The set of things that a person can choose to do (or buy) without breaking their budget.

Answer 12

Budget constraint.

Question 13

The best alternate activity.

Answer 13

Opportunity cost.

Question 14

A calculation that adds up costs and benefits using a common unit of measurement.

Answer 14

Cost-benefit analysis.

Question 15

Economist use to describe those who don’t contribute but still benefit from the investment that others make.

Answer 15

Free rider problem.

Question 16

The definition of economics states that it is the study of how….

Answer 16

Agents choose to allocate scarce resources and the impact of those choices on society.

Question 17

The statement that the United States has a budget deficit that is in excess of $15 trillion is a ____ statement since it describes what people ____.

Answer 17

Positive, actually do.

Question 18

The statement that the United States should legalize same sex marriage is a ____ statement since it describes what people ____.

Answer 18

Normative, ought to do.

Question 19

The ethical implications of a hotly debated government policy would best be considered a ____

Answer 19

Normative question since it deals with a subjective issue based on personal preferences.

Question 20

Microeconomics studies ____, while macroeconomics studies ____.

Answer 20

A small piece of the overall economy, the economy as a whole.

Question 21

Policy decisions made by the government are analyzed by____.

Answer 21

Both microeconomics and macroeconomics.

Question 22

A policy such as pollution regulations on steel plants would be studied under ____, since it deals with ____.

Answer 22

Microeconomics, a small part of the overall economy.

Question 23

Empiricism describes a situation where ____.

Answer 23

Economist use data to analyze what is happening in the world.

Question 24

Optimization describes a situation where ____.

Answer 24

People weigh costs and benefits when making a decision.

Question 25

Equilibrium describes a situation where ____.

Answer 25

No one would benefit from changing his or her behavior.

Question 26

Economics, anthropology, psychology, and political science all study human behavior. Economics differs from these other social sciences because it addresses these three key concepts: ____

Answer 26

Optimization, equilibrium and empiricism.

Question 27

Suppose your new year resolution is to get back in shape. You are considering various ways of doing this: you can sign up for a gym membership, walk to work, take the stairs instead of the elevator, or watch your diet. How would you evaluate these options and choose an optimal one?

Answer 27

Do a cost benefit analysis to compare the alternatives.

Question 28

When making your decision about which activity to choose, you should consider the monetary cost ____ the opportunity cost of the activities. The goal is to choose the option that offers the greatest ____ benefit.

Answer 28

As well as, net.

Question 29

During the process of optimization economists believe that people are considering ____.

Answer 29

The feasibility of a choice given the information available at the time.

Question 30

The goal of optimization for an individual is to maximize ____.

Answer 30

Overall well-being.

Question 31

Suppose that you allocate $20 each week for your entertainment budget. This money is spent on two items: either renting movies for $1 each at Redbox or downloading songs from iTunes at $1 each. Given this information, what would represent your budget constraint for entertainment?

Answer 31

Amount spent on iTunes + amount spent on redbox = $20

Question 32

The opportunity cost of an activity is a measure of what is ____ when you do an activity.

Answer 32

Given up.

Question 33

You are trying to decide what to do on Friday at 11 am. You rank your possible options from the one you value the most to the one you value the least in the following order: going to class, sleeping in late, going to work early, getting lunch, going to the gym to exercise and watching television. If you decide to go to class, then what do we know about the opportunity cost of your decision?

Answer 33

The opportunity cost would be sleeping in late, since it was your next-best option.

Question 34

Comparing a set of feasible alternatives and picking the best one is an optimization process called ____.

Answer 34

Cost-benefit analysis.

Question 35

When deciding whether to install visible countdown timers for pedestrians at crosswalks what would be considered in the cost benefit analysis?

Answer 35

The cost in terms of dollars of installing these new timers all over the city.
The value of the pedestrians lives saved by having the timers to assist in crossing the street.
The higher maintenance bill associated with fixing these more complex signals when they break down.
The value of the lives lost by drivers who watch the countdown timers and try to make it through a light.

Question 36

Free riding occurs when ____ are out of sync with____.

Answer 36

People’s private beliefs, the public interest.

Question 37

Which of the following is more susceptible to the free rider problem: government funded symphonies or street lights?

Answer 37

Use of streetlights is more susceptible since even those who don’t pay taxes still benefit, while government funded symphonies can charge for admission, so that everyone who goes pays their share.

Question 38

For a market to be in equilibrium:
The amount produced by sellers must be ____ the amount purchased by buyers.
The costs of making a product must be ____ the final price at which the product sells.
Buyers must place a value on the uses of the product that is ____ the cost of buying the product.

Answer 38

Equal to
Less than
Greater than.

Question 39

What is not an example of causation?

Answer 39

Driving without car insurance will lead to getting into an accident.

Question 40

Lower infant mortality is ____ and an improvement in nutrition is ____.

Answer 40

Effect, cause.

Question 41

An individual or a group that makes choices.

Answer 41

Economic agent