Macro Economics Chapter 1 – Flashcards

For economists, the word "utility" means: versatility and flexibility. rationality. pleasure or satisfaction. purposefulness.

According to economists, economic self-interest: is a reality that underlies economic behavior. has the same meaning as selfishness. means that people never make wrong decisions. is usually self-defeating.

The study of economics is primarily concerned with: keeping private businesses from losing money. demonstrating that capitalistic economies are superior to socialistic economies. choices that are made in seeking the best use of resources. determining the most equitable distribution of society's output.

Economics involves marginal analysis because: most decisions involve changes from the present situation. marginal benefits always exceed marginal costs. marginal costs always exceed marginal benefits. much economic behavior is irrational.

Opportunity costs exist because: the decision to engage in one activity means forgoing some other activity. wants are scarce relative to resources. households and businesses make rational decisions. most decisions do not involve sacrifices or trade-offs.

The assertion that "there is no free lunch" means that: there are always trade-offs between economic goals. all production involves the use of scarce resources and thus the sacrifice of alternative goods. marginal analysis is used in economic reasoning. choices need not be made if behavior is rational.

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of: resource scarcity and the necessity of choice. purposeful behavior. marginal costs that exceed marginal benefits. the trade-off problem that exists between competing goals.

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as: rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants. greedy because he is asking for a high wage that some of his neighbors can't afford to pay. selfish because he is asking for a wage that is higher than others might charge. irrational because some neighbors refused his offer.

The scientific method is: not applicable to economics because economics deals with human beings. also known as the economic perspective. analysis that moves from broad generalizations called laws to theories and then to hypotheses. used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

In constructing models, economists: make simplifying assumptions. include all available information. must use mathematical equations. attempt to duplicate the real world.

The Latin term "ceteris paribus" means: that if event A precedes event B, A has caused B. that economics deals with facts, not values. other things equal. prosperity inevitably follows recession.

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that: the quantity of bananas purchased determines the price of bananas. all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant. economists can conduct controlled laboratory experiments. one cannot generalize about the relationship between the price of bananas and the quantity purchased.

Microeconomics is concerned with: the aggregate or total levels of income, employment, and output. a detailed examination of specific economic units that make up the economic system. positive economics, but not normative economics. the establishing of an overall view of the operation of the economic system.

Ben says that "an increase in the tax on beer will raise its price." Holly argues that "taxes should be increased on beer because college students drink too much." We can conclude that: Ben's statement is normative, but Holly's is positive. Holly's statement is normative, but Ben's is positive. Both statements are normative. Both statements are positive.

The alternative combinations of two goods that a consumer can purchase with a specific money income is shown by: a production possibilities curve. a demand curve. a consumer expenditure line. a budget line.

In moving along a given budget line: the prices of both products and money income are assumed to be constant. each point on the line will be equally satisfactory to consumers. money income varies, but the prices of the two goods are constant. the prices of both products are assumed to vary, but money income is constant.

Refer to the graphs. Assume that pizza is measured in slices and beer in pints. In which of the graphs is the opportunity cost of a pint of beer equal to one slice of pizza? (pic17) Graph A. Graph B. Graph C. Graph D.

The process of producing and accumulating capital goods is called: money capital. depreciation. investment. consumption.

When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because: of the law of increasing opportunity costs. economic wants are insatiable. resources are limited. resources are specialized and only imperfectly substitutable.

The production possibilities curve tells us: the specific combination of two products that is most desired by society. that costs do not change as society varies its output. that costs are irrelevant in a society that has fixed resources. the combinations of two goods that can be produced with society's available resources.

Refer to the diagram for athletic shoes. The optimal output of shoes is: (pic21) Q1. Q2. Q3. greater than Q3.

A nation's production possibilities curve might shift to the left (inward) as a result of: technological advance. increases in the size of the labor force. the depletion of its soil fertility due to overplanting and overgrazing. investing in more capital goods.

Suppose that Scoobania, which has full employment, can obtain 1 unit of capital goods by sacrificing 2 units of consumer goods domestically but can obtain 1 unit of capital goods from another country by trading 1 unit of consumer goods for it. This reality illustrates: a rightward (outward) shift of the production possibilities curve. increasing opportunity costs. achieving points beyond the production possibilities curve through international specialization and trade. productive efficiency.

If we say that two variables are directly related, this means that: the relationship between the two is purely random. an increase in one variable is associated with a decrease in the other variable. an increase in one variable is associated with an increase in the other variable. the two graph as a downsloping line.

The slope of a straight line can be determined by: comparing the absolute horizontal change to the absolute vertical change between two points on the line. comparing the absolute vertical change to the absolute horizontal change between two points on the line. taking the reciprocal of the vertical intercept. comparing the percentage vertical change to the percentage horizontal change between two points on the line.