Micro Ch 2 Thinking Like an Economist – Flashcards
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a simplified representation of some aspect of the economy.
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An economic model is
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households are sellers, and firms are buyers.
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The circular-flow diagram illustrates that, in markets for the factors of production,
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feasible, but not efficient.
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A point inside the production possibilities frontier is
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move the economy along the production possibilities frontier.
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An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumers' preferences, it would
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the influence of the government budget deficit on economic growth.
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All of the following topics fall within the study of microeconomics EXCEPT
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Law X will reduce national income.
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Which of the following is a positive, rather than a normative, statement?
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Selena pays a storekeeper $1 for a quart of milk: GS Firm to household, $ Household to firm Stuart earns $4.50 per hour working at a fast-food restaurant: GS Household to firm, $ Firm to household Shanna spends $30 to get a haircut: GS Firm to household $ Household to firm Salma earns $10,000 from her 10% ownership of Acme Industrial GS Household to firm $ Firm to household
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For each of the following activities, identify the flow of goods and services and the flow of dollars as either household to firm or firm to household.
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The production possibilities frontier has a bowed-out shape because the quantity of guns the economy must give up in order to produce more butter INCREASES the more butter is produced. In other words, the opportunity cost of butter RISES with increased production. Impossible: A Feasible, but inefficient: A
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Imagine a society that produces military goods and consumer goods, which we'll call "guns" and "butter," respectively. The following graph shows the production possibilities frontier for guns and butter.
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When new technology emerges that makes cleaning the air cheaper, this means that for every level of industrial output, the air can be made cleaner than it was before, resulting in a pivot of the production possibilities frontier around the horizontal intercept. However, the maximum amount of industrial output that can be produced is unchanged by this technology. Therefore, the vertical intercept of the production possibilities frontier increases in this case, and the horizontal intercept remains at its original location.
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The first principle of economics discussed in Chapter 1 is that people face trade-offs. The following production possibilities frontier illustrates society's trade-offs between spending money on two "goods," a clean environment and the quantity of industrial output. Show what happens to the production possibilities frontier (PPF) if new technology develops that makes cleaning the air cheaper.
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True
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The production possibilities frontier has this shape because each worker faces a constant trade-off between mowing lawns and washing cars.
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Micro Micro Macro Micro Macro
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A family's decision about how much income to save The effect of government regulations on auto emissions The impact of higher national saving on economic growth A firm's decision about how many workers to hire The relationship between the inflation rate and changes in the quantity of money
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Positive Positive Normative Normative Positive
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Society faces a short-run tradeoff between inflation and unemployment. A reduction in the rate of money growth will reduce the rate of inflation. The Federal Reserve should reduce the rate of money growth. Society ought to require welfare recipients to look for jobs. Lower tax rates encourage more work and more saving.
