Chapter 2

Question 1

Equity

Answer 1

Value of a corporation’s assets (including the cash that can be obtained if it’s equipment and real estate were sold) MINUS the value of its outstanding debt

Question 2

Marginal Social Benefit

Answer 2

Extra benefit of a good obtained by making one more unit of that good available per month (or over any other period)

Question 3

Marginal Social Cost

Answer 3

Minimum sum of money required to compensate the owners of inputs used in producing a good for making an extra unit of the good available

Question 4

Normative Economics

Answer 4

Designed to create recommendations to what SHOULD be accomplished.

This evaluates the alternative policies and actions on the basis of underlying value judgements.

Question 5

Positive Economics

Answer 5

Scientific approach to analysis

Establishes cause-and-effect relationships among economic variables.

Question 6

Efficiency Criterion

Answer 6

Criterion that is satisfied when resources are used over any given period of time

Used in a way to make it impossible to improve the well-being of any one person without reducing the well-being of any other person

Question 7

Marginal Conditions for Efficient Resource Allocation

Answer 7

A condition that requires resources to be allocated to the production of each good over each period so that……

(Marginal social benefit) = MSC (marginal social cost)