Chapter 1

Question 1

Economic Perspective

Answer 1

A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions

Question 2

Economic Perspective

Answer 2

A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions

Question 3

Economics

Answer 3

The social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity

Question 4

Opportunity Costs

Answer 4

The amount of other products that must be forgone or sacrificed to produce a unit of a given product

Question 5

Scarcity

Question 6

Utility

Answer 6

The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains

Question 7

Marginal Analysis

Answer 7

The comparison of marginal benefits and marginal costs for decision making

Question 8

Marginal Analysis

Answer 8

The comparison of marginal benefits and marginal costs for decision making

Question 9

Resources

Answer 9

The inputs, or factors of production, used to produce the goods and services that people want consisting of labor, capital, natural resources, and entrepreneurial ability

Question 10

Economic Principle

Answer 10

A widely accepted generalization about the economic behavior of individuals or institutions

Question 11

other-things-equal assumption (ceteris paribus)

Answer 11

The assumption that factors other than those being considered are held constant

Question 12

Marginal

Answer 12

Incremental, additional, or extra; used to describe a change in an economic variable

Question 13

Circular-Flow Model

Answer 13

A diagram that traces the flow of resources, product, income, and revenue among economic decision makers

Question 14

Rational Self-Interest

Answer 14

Each individual tries to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit

Question 15

Economic Fluctuations (Business Cycles)

Answer 15

The rise and fall of economic activity relative to the long-term growth trend of the economy

Question 16

Economic Theory (Model)

Answer 16

A simplification of reality used to make predictions about cause and effect in the real world

Question 17

Variable

Answer 17

A measure, such as price or quantity, that can take on different values at different variables

Question 18

Other-things-constant assumption (ceteris paribus)

Answer 18

The assumption, when focusing on the relation among key economics variables that other variables remain unchanged

Question 19

Behavioral Assumption

Answer 19

An assumption that describes the expected behavior of economic decision makers; what motivates them

Question 20

Hypothesis

Answer 20

A theory about how key variables related to each other

Question 21

Positive Economic Statement

Answer 21

A statement that can be proved or disproved by reference to facts

Question 22

Normative Economic Statement

Answer 22

A statement that reflects on opinion, which cannot be proved or disproved by reference to facts

Question 23

Association-Causation Fallacy

Answer 23

The incorrect idea that if two variables are associated in time, one must necessarily cause the other

Question 24

Fallacy of Composition

Answer 24

The incorrect belief that what is true for individual, or part, must necessitate be true for the group, or the whole

Question 25

Secondary Effects

Answer 25

Unintended consequences of economic actions that may develop slowly over time as people react to events