ECON 2301 Chapter 1

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economic agent
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an individual or group that makes choices
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economics is the study of a person’s _________
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choice
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1st principal of economics
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try to OPTIMIZE (try to choose the best available option: outweigh benefits and costs)
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2nd principal of economics
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Equilibrium
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definition of equilibrium
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the situation in which nobody believes they would benefit by changing his own behavior
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3rd principal of economics
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empricism
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what is empricism
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analysis that uses data
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scarce resources
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things that people want, where the quantity that people want exceeds the quantity that is available
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examples of scarce resources
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gold wedding bands, Coach handbags, iPhones, triple-chocolate-fudge ice cream.
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scarcity
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is having unlimited wants in the world of limited resources
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economics
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is the study of how agents choose to allocate scarce resources and how those *choices* affect society
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positive economics
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what people actually do (objective statements/facts that can be tested)
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normative economics
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what people ought to do (subjective/ opinions/ethical judgements)
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2 sections of economics
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microeconomics and macroeconomics
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Microeconomics
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is 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.
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macroeconomics
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is the study of the economic as a whole, the study of the economy-wide phenomena, like the growth rate of a country’s total economic output, or the percentage increase in overall (aggregate) prices, etc.
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feasability goes with what economic principal?
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optimization ex: I only have $10. would I buy a $5 sandwich or a $50 filet mignon- obviously the $5 sandwich because it is avvailable and affordable
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what principle refers to info available at the time of the choice?
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optimization
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what can help an agent realize their mistakes and make better choices in the future?
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normative analysis
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trade-off
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when some benefits are given up in order to gain others
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budget constraint
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is the set of things a person can choose to do (or buy) without breaking her budget
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example of a budget constraint
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5 hrs = 2 web + 3 work OR 5 hrs= 1 web + 4 work
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opportunity cost
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is the best alternative use of a resource (2nd place)
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cost-benefit analysis
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is a calculation that adds up costs and benefits using a common unit of measurement, like dollars.
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what is the same as optimization?
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cost benefit analysis
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example of equilibrium at a grocery store?
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same wait in every check out line
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in equilibrium, both buyers and ______ are optimizing?
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seller
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free-rider problem
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letting others do the contributing (riding the coat-tails of others)
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selfish acts are more common than those acts that contribute to :
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the public interest
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The definition of economics states that it is the study of how‚Äč _________.
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agents choose to allocate scarce resources and the impact of those choices on society.
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The statement that the United States has an average annual inflation rate of 2.1 percenthas an average annual inflation rate of 2.1 percent is a __________ statement since it describes what people _________.
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positive; actually do
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The statement that the United States has too many illegal immigrants is a ___________ statement since it describes what people ___________.
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normative; ought to do
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The ethical implications of a hotly debated government policy would best be considered a‚Äč _________. A. positive‚Äč question, since it deals with an objective issue based on factual evidence. B. normative‚Äč question, since it deals with an objective issue based on factual evidence. C. positive‚Äč question, since it deals with a subjective issue based on personal preferences. D. normative‚Äč question, since it deals with a subjective issue based on personal preferences.
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D. normative‚Äč question, since it deals with a subjective issue based on personal preferences.
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Microeconomics studies‚Äč _________, while macroeconomics studies‚Äč _________. A. a small piece of the overall‚Äč economy; the economy as a whole. B. ‚Äčeconomy-wide phenomena; decisions made by the government. C. ‚Äčmoney; policy. D. issues relating to‚Äč businesses; choices made by individuals and consumers.
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A. a small piece of the overall‚Äč economy; the economy as a whole.
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Policy decisions made by the government are analyzed by‚Äč _________. A. both microeconomics and macroeconomics. B. only macroeconomics. C. neither microeconomics nor macroeconomics. D. only microeconomics.
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A. both microeconomics and macroeconomics.
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A policy such as those limiting a firm’s monopoly powers would be studied under _____________________‚Äč, since it deals with ____________________________.
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microeconomics; a small part of the overall economy
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1. Empiricism describes a situation where economists use data to analyze what is happening in the world______________. 2. Optimization describes a situation where _____________________. 3. Equilibrium describes a situation where _______________________. a. people weigh costs and benefits when making a decision b. economists use data to analyze what is happening in the world c. no one would benefit from changing his or her behavior
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1.b 2.a 3.c
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Economics, anthropology,‚Äč psychology, sociology, and political science all study human behavior. Economics differs from these other social sciences because it also addresses these three key‚Äč concepts: _________. A. ‚ÄčCulture, optimization, and trade. B. ‚ÄčEmpiricism, ideology, and social responsibility. C. ‚ÄčEquilibrium, government‚Äč actions, and incentives. D. ‚ÄčOptimization, equilibrium, and empiricism.
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D. ‚ÄčOptimization, equilibrium, and empiricism.
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Suppose your New Year resolution is to get back in shape. You are considering various ways of doing‚Äč this: you can sign up for a gym‚Äč membership, walk to‚Äč work, take the stairs instead of the‚Äč elevator, or watch your diet. How would you evaluate these options and choose an optimal‚Äč one? A. You should choose an activity randomly to avoid regretting your decision later. B. You should do the activity that gives you the greatest personal‚Äč benefit, regardless of the cost. C. Do a‚Äč cost-benefit analysis to compare the alternatives. D. It makes the most sense to do the action that costs the least amount of money. _________________________ When making your decision about which activity to‚Äč choose, you should consider the monetary cost (as well as/ over) the opportunity cost of the activities. The goal is to choose the option that offers the greatest (overall/net) benefit.
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C. Do a‚Äč cost-benefit analysis to compare the alternatives. _____________________ as well as; net
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During the process of optimization economists believe that people are considering‚Äč _________. A. what they would do if they had no money or time constraints of any kind. B. only the decisions that will result in the least cost to the individual. C. the feasibility of a‚Äč choice, given the information available at the time. D. the benefits of their choices for others more than the benefits to themselves.
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C. the feasibility of a‚Äč choice, given the information available at the time.
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The goal of optimization for an individual is to maximize _______________________.
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overall well-being
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Suppose that you allocate‚Äč $20 each week for your entertainment budget. This money is spent on two‚Äč items: either renting movies for‚Äč $1 each at Redbox or downloading songs from iTunes at‚Äč $1 each. Given this‚Äč information, which of the following would represent your budget constraint for‚Äč entertainment? A. Amount spent on iTunes minus‚ąí Amount spent at Redbox minus‚ąí ‚Äč$1 =‚Äč $20. B. Amount spent on iTunes‚Äč + Amount spent at Redbox‚Äč = $20. C. Amount spent on iTunes‚Äč + Amount spent at Redbox‚Äč = $1. D. Amount spent on iTunes minus‚ąí Amount spent at Redbox‚Äč = $20.
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B. Amount spent on iTunes‚Äč + Amount spent at Redbox‚Äč = $20.
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Your budget constraint for entertainment illustrates the concept of _______________, since as you increase your purchases of one‚Äč item, you must (decrease/increase) your purchases of the other item.
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trade-offs ; decrease
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The opportunity cost of an activity is a measure of __________________ when you do that activity.
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what is given up
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‚ÄčLet’s say that you are trying to decide what to do on Friday at 11 a.m. You rank your possible options from the one you value the most to the one that you value the least in the following‚Äč order: going to‚Äč class, sleeping in‚Äč late, going to work‚Äč early, getting‚Äč lunch, going to the gym to‚Äč exercise, and watching television. If you decide to go to‚Äč class, then what do we know about the opportunity cost of your‚Äč decision? A. The opportunity cost would include sleeping in‚Äč late, going to work‚Äč early, getting‚Äč lunch, going to the gym to‚Äč exercise, and watching television. B. The opportunity cost would be‚Äč working, since it is the only option that can be put in a dollar amount. C. The opportunity cost would be sleeping in‚Äč late, since it was your‚Äč next-best option. D. There would be no opportunity cost in this example.
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C. The opportunity cost would be sleeping in‚Äč late, since it was your‚Äč next-best option.
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Comparing a set of feasible alternatives and picking the best one is an optimization process called‚Äč _________. A. likelihood estimation. B. statistical inference. C. ‚Äčcost-benefit analysis. D. normative analysis.
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C. ‚Äčcost-benefit analysis.
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When deciding whether to install visible countdown timers for pedestrians at‚Äč crosswalks, which of the following would be considered in the‚Äč cost-benefit analysis? ‚Äč(Check all that apply.‚Äč) A. The value of the lives lost by drivers who watch the countdown timers and try to make it through a light. B. The value of the‚Äč pedestrians’ lives saved by having the timers to assist in crossing the street. C. The cost in terms of dollars of installing these new timers all over the city. D. The higher maintenance bill associated with fixing these more complex signals when they break down.
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A,B,C,D
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Free riding occurs when _____________________ are out of sync with ____________________.
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people’s private benefits; the public interest
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Which of the following is subject to the‚Äč free-rider problem? A. National security. B. Public libraries. C. A neighborhood watch. D. All of the above.
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D. All of the above
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Which of the following is more susceptible to the‚Äč free-rider problem: government minus funded symphonies or public roads? A. Government-funded symphonies, since admission cannot be denied to anyone so everyone benefits, while public roads only benefit a small number of people at any given time. B. Use of public roads is more susceptible since even those who‚Äč don’t pay taxes still‚Äč benefit, while government minus funded symphonies can charge for admission‚Äč, so that everyone who goes pays their share. C. Both are equally susceptible to the‚Äč free-rider problem. D. Neither are susceptible to the‚Äč free-rider problem.
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B. Use of public roads is more susceptible since even those who‚Äč don’t pay taxes still‚Äč benefit, while government minus funded symphonies can charge for admission‚Äč, so that everyone who goes pays their share.
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For a market to be in‚Äč equilibrium, three conditions must hold. Fill in the blanks below to complete these conditions. 1. The amount produced by sellers must be (less than/ equal to/ greater than) the amount purchased by buyers. 2. The costs of making a product must be (less than/ equal to/ greater than) the final price at which the product sells. 3. Buyers must place a value on the uses of the product that is (less than/ equal to/ greater than) the cost of buying the product.
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1. equal to 2. less than 3. greater than
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Which of the following is true regarding the concept of‚Äč causation? A. It states that if event A causes event‚Äč B, then event B must also cause event A. B. It states that if event A causes event‚Äč B, then event B cannot have a causal effect on event A. C. It describes how one event can bring about change in another. D. For any two events that‚Äč occur, economists state that the first must have caused the‚Äč second, since it came first.
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C. It describes how one event can bring about change in another.
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Which of the following is not an example of‚Äč causation? A. Heavy drinking will lead to liver disease. B. Driving without car insurance will lead to getting into an accident. C. Talking on the phone while driving will lead to car accidents. D. All of the above are examples of causation.
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B. Driving without car insurance will lead to getting into an accident.
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Identify the cause and effect in the following‚Äč examples: 1. Lower infant mortality is (a cause/an effect) and an improvement in nutrition is (the cause/the effect) 2. A surge in cocoa prices is (a cause/an effect) and a pest attack on the cocoa crop is (the cause/the effect).
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1. an effect;the cause 2. an effect; the cause
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In which of the following areas will taking an economics course help benefit you throughout your‚Äč life? A. It will instill the concept that what activity is given up by a decision plays an important role when making choices. B. It will give you the logic behind using‚Äč cost-benefit analysis when evaluating decisions. C. It will help you analyze and predict human behavior in a variety of situations. D. All of the above.
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D. All of the above.

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