Macro Econ Chapter 1 - Flashcards

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The basic problem of economics arises when there are unlimited resources available to fulfill society's limited wants. (T/F)

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False

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Economics is the study of choice under conditions of

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Scarcity

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The study of economics would be superfluous if __________ did not exist.

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Scarcity

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Which of the following disciplines is not a social science? psychology mathematics economics political science sociology

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Mathematics

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What does economics have in common with sociology?

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Both are social sciences.

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Economics is

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the study of choice under conditions of scarcity

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Economics is

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the broad study of how to allocate limited resources to satisfy unlimited wants

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Economics is

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a discipline that focuses on how choices are made in society

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Economics is the study of

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choice under conditions of scarcity

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People and organizations have to make choices about how to allocate time and money because

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time and money are both scarce

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The basic problem addressed in economics is

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scarce resources and unlimited wants

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Individuals must make choices because

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resources are scarce and wants are unlimited

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Which of the following explains why individuals must make choices?

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scarcity of resources

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Economics is the study of

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choice under conditions of scarcity

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The core problem faced by all economic systems is that

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scarcity forces each of us to make choices

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In the United States, individuals are forced to make choices

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because both time and spending power are scarce

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Society's core economic problem is

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a scarcity of land, labor, and machinery to produce goods and services

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Due to a scarcity of resources

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every society must choose among competing uses of available resources

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All the problems studied in economics arise from

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the scarcity of resources

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In every economic system, scarcity imposes limitations on

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households, business firms, governments, and the nation as a whole

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Because of economic scarcity

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people and organizations have to allocate resources carefully

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No society can provide its citizens with everything that they want because of

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a scarcity of resources

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Society has to establish priorities among its goals because of

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a scarcity of resources

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Because households have limited incomes, they must

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allocate their spending carefully

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Even though households may have unlimited wants, they have to allocate their spending carefully because they

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have limited incomes

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In examining consumer behavior, one of the constraints faced by consumers is

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income

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All of the following are examples of constraints faced by decision makers, except one. Which is the exception?

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consumer wants

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Due to society's overall scarcity of resources,

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households, business firms and government agencies all face constraints

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The economic behavior of government is constrained by

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limited budgets

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The knowledge that students gain while in college is referred to by economists as human capital. (T/F)

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True

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Land, labor, and money are the three categories of economic resources (T/F)

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False

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Society's resources include

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land, labor, and capital

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The four main categories of resources are

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land, capital, labor, natural resources, and entrepreneurship

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A physician's knowledge and skills are referred to by economists as

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human capital

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The term capital, as used by economists, refers to HARD HARD HARD

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machinery and equipment that is not used up during the production process

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Which of the following is the best example of physical capital used to produce a textbook?

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the printing press

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Suppose you start your own company making T-shirts that commemorate campus sporting events. An example of the resource capital would be

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the factory you created in a building you are leasing

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Physical capital differs from raw materials in the sense that raw materials

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are used up in production

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Which of the following is a characteristic of entrepreneurship?

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it is associated with risk taking and innovation

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An entrepreneur is best described as

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someone with the ability to combine other resources in a productive enterprise

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Macroeconomics focuses on the behavior of economic agents such as the consumer, a business firm, or a specific market. (T/F)

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False

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Macroeconomics focuses on the economy as a whole. (T/F)

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True

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Microeconomics analyzes individual parts of the economy rather than broad economic aggregates. (T/F)

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True

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Microeconomic topics include the overall unemployment rate in the United States and the rate of inflation. (T/F)

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False

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How retail gasoline stations behave in a local market is an example of a macroeconomic issue. (T/F)

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False

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Microeconomics

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examines how individuals, households, and firms make economic decisions

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Microeconomics deals with which of the following?

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how producers and consumers interact in individual markets

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A microeconomist might study which of the following?

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why wages for females are lower than for males in a particular labor market

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The study of how consumers and producers interact in individual markets is

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microeconomics

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Macroeconomics is the study of

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what is happening in the economy as a whole

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Suppose that the following headlines appeared in a newspaper. Which would most clearly represent a macroeconomic issue?

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"Central Bank Raises Interest Rates"

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Microeconomics is the branch of economics that concerns

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the behavior of individual households, firms, and governments

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Which of the following would be strictly a microeconomic topic?

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an increase in the price of the Ford Taurus

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Macroeconomics is the branch of economics that concerns

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the overall health of the economy

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Which of the following would be studied in macroeconomics?

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total output in the nation

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Macroeconomics studies the determination of

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total output, total employment, the general price level, and the general level of interest rates

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Microeconomics is the study of

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the economic behavior of individual decision makers

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Macroeconomics is the study of

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the behavior of the economy as a whole

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The overall performance of the economic system as a whole is the focus of

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macroeconomics

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The study of how firms interact in a market is a

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microeconomic topic

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The unemployment rate for the economy as a whole is a(n)

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macroeconomic statistic

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The inflation rate for the economy as a whole is a

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macroeconomic statistic

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Microeconomic models focus on the behavior of

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individual households, business firms, and government agencies

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Macroeconomic models focus on the behavior of

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the entire economy

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The price of apples in Denver, Colorado is

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a microeconomic variable

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The price that a firm's only competitor charges would be a

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topic in microeconomics

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If the president of Chile commented that "the crime rate in Chile is currently too high," this would be an example of a normative statement. (T/F)

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True

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Economists disagree about many things. When those disagreements are about which model best explains the economy, these disagreements are primarily over "positive" statements. (T/F)

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True

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Positive economic statements are usually easier to refute with data than normative economic statements are. (T/F)

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True

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Positive economics deals with

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how the economy does work

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Which of the following is the study of economic policy recommendations?

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normative economics

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An economist claims that "the evidence suggests that high rates of inflation are associated with slow long-term economic growth." This is an example of

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positive economics

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The distinction between positive and normative economics

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helps us understand why economists sometimes disagree with one another

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Suppose two economists disagree about who would be helped or hurt by certain legislation. These disagreements

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are positive in nature

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Suppose two economists agree about who would be helped or hurt by certain legislation, but disagree about whether the legislation would be a good idea. These disagreements

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are normative in nature

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When economists disagree about whether legislation is a good idea, even when they agree about its impacts, the disagreements are usually over

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normative issues

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Economists disagree about whether increasing the minimum wage is a good idea, because they put different weight on the importance that the negative impacts have relative to the positive impacts. As such, the disagreements are usually over

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normative issues

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The Congressional Budget Office and the Office of Management and Budget each produce deficit forecasts for a fiscal year. They use models that are mostly similar but have notable differences. As such, the disagreements are likely usually over

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positive issues

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"The Consumer Price Index increased by 4.2 percent in the first quarter of this year." What type of statement is this?

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positive

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Understanding the distinction between positive and normative economic statements is important because it

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provides a framework for understanding differences among economists

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Which of the following is a positive statement?

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When per capita income falls, fewer meals are consumed at restaurants.

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Which of the following is a normative statement?

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Americans would be better served by single-payer health care system.

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Which of the following explains why economists may disagree over normative issues?

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They have different beliefs and values.

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Which of the following explains why economists may disagree over positive issues?

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They often employ different models and statistical techniques when examining data.

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"Senior citizens deserve an income that will allow them to live in comfort for their remaining years." This is

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a normative statement

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A newspaper headline announces that "more college graduates than ever are in the labor force." This is an example of

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a positive statement

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Which of the following is most closely associated with positive economics?

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determining the impact of government spending on the actual level of total employment

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Normative economics deals with

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value judgments

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Which of the following would be a concern of normative economics?

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recommending a change in government policy to make the distribution of income more equitable

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If two economists disagree about the magnitude of employment effects of a proposed change in government policy, the difference in opinion

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is more likely to be positive than normative

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If two economists completely agree about the magnitude of employment effects of a proposed change in government policy, but disagree about whether the change is a good idea. The difference in opinion

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must be normative in nature

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Positive economics deals with

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statements of fact

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A statement of fact that can be verified by observation is

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a positive statement

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Normative economics deals with

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statements about the value of a proposed policy

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A statement of opinion about which model best explains the economy is HARD HARD HARD

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a positive statement

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A statement of opinion about which policy is best for America is

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a normative statement

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The statement "The unemployment rate in the U.S. was 5 percent last month" is

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a positive statement

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The statement that "IBM's stock closed at $85" is

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a positive statement

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The statement "The unemployment rate in the U.S. is 5 percent" is

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a positive statement that can be falsified

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Suppose that the Council of Economic Advisers tells the President that "the unemployment rate is 4 percent." The President responds, "That rate is still too high." The President's statement is

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a normative statement

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The statement that "at 10 percent, the interest rate is too high for families to buy the home they deserve," is a(n)

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normative statement

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The statement that "at 10 percent, the interest rate is too high for families to buy a home they could have afforded when the interest rate was below 7 percent ," is a(n)

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positive statement

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Even if economic theory is based on positive analysis, economists may still disagree with each other because

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they may have different values, like everyone else

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Because economists have different values, like everyone else, they

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may disagree, even though economic theory is based on positive statements

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Reasons for studying economics include

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all of the following b. to better understand world issues by applying the tools of economic analysis c. to help design more effective solutions to society's problems d. to help prepare for careers in fields such as law and politics e. to better understand the impact of world events on an individual's life

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Using economic analysis to help understand world issues

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highlights the role of choice when resources are scarce

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Economic models do not have to completely describe every aspect of the economy in order to be useful. (T/F)

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True

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Simplifying assumptions always affect the conclusions derived from an economic model. (T/F)

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False

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Economic models typically assume that decision makers face constraints because of scarce resources. (T/F)

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True

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An economic model can be described as

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an abstract representation of reality

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An economic model

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simplifies reality in order to focus on crucial elements

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One guideline that should be used whenever possible in developing a model is to

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keep the model as simple as possible

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Economic models are used primarily to

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predict behavior under specific circumstances

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Economic models come in the form of

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all of the following b.words d. diagrams e. mathematical equations

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A good economic model

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is as simple as possible, including only necessary details

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The level of detail in an economic model

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depends on the purpose of the model

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An economic model is

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an abstract representation of reality

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A simplifying assumption

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eliminates unnecessary details from an economic model

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If an economic model includes an assumption that there are only two nations in the world, this would be an example of

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a simplifying assumption

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A critical assumption

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has an important impact on the conclusions of an economic model

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Consider an economic model designed to analyze the behavior of business firms. An assumption that the goal of the firms is to maximize profit would be

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a critical assumption

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Consider an economic model designed to analyze the purchasing decisions of households. An assumption that a household chooses between only two goods would be an example of

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simplifying assumption

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In order to eliminate unnecessary details and highlight the essential features of an economic model, an economist makes

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simplifying assumptions

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The ultimate purpose of an economic model is to

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help us understand economic behavior

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A critical assumption made by all economic models is that

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every economic decision maker faces constraints under every economic system

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An economic model is a(n)

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abstract representation of reality

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An assumption that makes an economic model simpler without affecting its conclusions in important ways is

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a simplifying assumption

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A critical assumption is one

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that affects a model in important ways

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An assumption that affects a model in important ways is

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a critical assumption

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The ultimate purpose of building an economic model is to

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predict behavior

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A critical assumption differs from a simplifying assumption in that a critical assumption

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can affect the conclusions of the model

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Which of the following is assumed in virtually every economic model?

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All decision makers face constraints.

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The best economic theory is the one

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hat yields the most accurate predictions

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The objective of an economic model is to

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yield better understanding of important relationships

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The opportunity cost of a particular activity is the sum of the benefits that could have been received from all foregone activities. (T/F)

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False

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If Sally purchases a particular compact disk, it is because the opportunity cost is higher than it would be for any other compact disk. (T/F)

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False

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Suppose your friends take you out for dinner on your birthday and you have a much better time than you would have had doing anything else. There is still an opportunity cost, even though they will not let you pay for anything. (T/F)

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True

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Opportunity costs arise because of resource scarcity. (T/F)

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True

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The opportunity cost of any activity can be measured by the

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value of the best alternative to that activity

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Opportunity costs exist because

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limited resources cannot satisfy all of the wants in society

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The opportunity cost of a particular activity

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may include both monetary costs and forgone income

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After graduating from high school, Steve had the following three choices for his immediate future, listed in order of preference: (1) attend our campus, (2) work in a printed circuit board factory, or (3) attend a rival college. His opportunity cost of going to college here includes which of the following?

answer

The income he could have earned at the printed circuit board factory plus the direct cost of attending college here (tuition, textbooks, etc.)

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A professional basketball players' union negotiates a contract that dramatically increases all players' salaries. How would this influence the opportunity cost for a player who was considering giving up basketball to pursue a career in broadcasting?

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It would increase the opportunity cost of becoming a broadcaster.

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A particular music store, Discs-R-Us, sells over 3,000 different compact disks. Pat's opportunity cost of choosing to purchase a compact disk by Pearl Jam

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is how much he would have enjoyed his second-favorite compact disk

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For an individual, opportunity costs

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reflect resource scarcity.

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Grant has four hours of time to divide between studying for a physics exam and a geology exam. Figure 1-1 shows his estimates of the grades (on a scale of 0 to 100) that he could earn from studying a particular number of hours on each subject. If he plans on spending two hours studying each subject, what would be his opportunity cost of an additional hour studying physics? Hrs PS GS 0 40 30 1 50 60 2 60 80 3 85 90 4 90 100

answer

20 points on his geology exam

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Grant has four hours of time to divide between studying for a physics exam and a geology exam. Figure 1-1 shows his estimates of the grades (on a scale of 0 to 100) that he could earn from studying a particular number of hours on each subject. If he plans on spending three hours studying physics, what would be his opportunity cost of an additional hour studying physics? Hrs PS GS 0 40 30 1 50 60 2 60 80 3 85 90 4 90 100

answer

20 points on his geology exam

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Due to resource scarcity,

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all economic activities have an opportunity cost

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Suppose a new freshman enters State U with the objective of having lots of fun while getting good grades. Suppose that Friday and Saturday night offer the best/most efficient times for having fun and the day time offers the best time for studying. She should

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assume there is a tradeoff between fun and grades that reflects increasing opportunity cost

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The money we pay for a good or service

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generally is only part of its opportunity cost.

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What an economic decision maker must give up when choosing one economic activity over others is known as the

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opportunity cost

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Assume that Kelly's various possible activities are mutually exclusive. The opportunity cost from choosing one activity equals the

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value of the next most valuable alternative activity

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Carl is considering attending a concert with a ticket price of $35. He estimates that the cost of driving to the concert and parking there will total an additional $20. In order to attend the concert, Carl will have to take time off from his part-time job. He estimates that he will lose 5 hours at work, at a wage of $6 per hour. Carl's opportunity cost of attending the concert equals

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$85

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Carl is considering attending a concert with a ticket price of $35. He estimates that the cost of driving to the concert and parking there will total an additional $20. In order to attend the concert, Carl will have to take time off from his part-time job and forgo studying for an exam scheduled for the next morning. He estimates that he will lose 3 hours at work, at a wage of $6 per hour, plus 2 hours of study time. Carl's opportunity cost of attending the concert equals

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$73 plus the value of the higher exam grade he could earn by studying longer

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Carl is considering attending a concert with a ticket price of $35. He estimates that the cost of driving to the concert and parking there will total an additional $20. In order to attend the concert, Carl will have to take time off from his part-time job or forgo studying for an exam scheduled for the next morning. He estimates that he will lose 5 hours at work, at a wage of $6 per hour, or 5 hours of study time. If Carl considers studying the best alternative use of his time, his opportunity cost of attending the concert equals

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$55 plus the value of the higher exam grade he could earn by studying for 5 hours

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The opportunity cost of a particular economic activity

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can differ among different individuals considering the activity

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The opportunity cost of any action is

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what is sacrificed to pursue that action

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Individuals face opportunity costs because

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time and funds are scarce

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The opportunity cost of an economic action is

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the value of the next best alternative that must be sacrificed

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High-income people will sometimes pay higher prices at convenience stores for goods that are available at discount stores. They do this because

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crowded and understaffed discount stores impose higher time costs

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A consultant who earns $100 per hour takes four hours off work to go to the movies. The out-of-pocket cost for the cab and the movie ticket are $12. The total cost of the movie to the consultant is

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$412

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Kate takes a part-time job and the sacrifice of study time causes her grade point average to fall from 3.5 to 2.9. Assume that the grade point average would have stayed at 3.5 if study time had not been reduced. The opportunity cost of having taken the job is the

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0.6 decrease in the grade point average

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For society as a whole, producing more of one good or service has an opportunity cost because

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human wants are unlimited and resources are limited

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Society as a whole faces opportunity costs because

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resources are scarce

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Opportunity costs arise in production because

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resources must be shifted away from producing one good in order to produce another

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The idea of opportunity cost suggests that the cost of a particular choice should be measured by the

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value of the best alternative sacrificed

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When measuring the opportunity cost of taking a vacation to Europe, the money spent on the flight, hotels, and meals is

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generally less than the opportunity cost of the vacation

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All production involves an opportunity cost because

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to produce more of one thing, we must produce less of something else

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Because resources are scarce, if society produces more of one commodity, it has to sacrifice some amount of another commodity. The amount sacrificed is

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the opportunity cost

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In one hour, George can fix 4 flat tires or type 200 words. His opportunity cost of fixing a flat tire is

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50 words

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In one year, a weapons plant can manufacture either 1,000 more guns or 50 more tanks. The plant's opportunity cost of an extra tank is approximately

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20 guns

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In one year, a weapons plant can manufacture either 1,000 more guns or 50 more tanks. The plant's opportunity cost of an extra gun is approximately

answer

1/20 of a tank

Macro Econ Chapter 1 – Flashcards

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