Microeconomics Ch. 1 Test Questions – Flashcards

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Scarcity
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A situation in which unlimited wants exceed the limited resources available to fulfill those wants
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Economics
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The study of the choices people make to attain their goals, given their scarce resources
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Economic model
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A simplified version of reality used to analyze real-world economic situations
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Market
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A group of buyers and sellers a good or service and the institution or arrangement by which they come together to trade
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Marginal analysis
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Analysis that involves comparing marginal benefits and marginal costs
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Trade off
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The idea that, because of scarcity, producing more of one good or service means producing less of another good or service
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Opportunity Cost
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The highest-valued alternative that must be given up to engage in an activity
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Centrally planned economy
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An economy in which the government decides how economic resources will be allocated
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Market economy
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an economy in which the decisions of households and firms interacting in markets allocate economic resources, usually more efficient
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Mixed economy
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An economy in which most economic of buyers and sellers in markets but in which the government plays a significant role in the allocation
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Productive efficiency
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A situation in which a good or service is produced at the lowest possible cost
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Allocative efficiency
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A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it
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Voluntary exchange
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A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction
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Equity
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The fair distribution of economic benefits
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Economic variable
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Something measurable that can have different values, such as the incomes of doctors
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Positive analysis
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Analysis concerned with what is
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Normative analysis
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Analysis concerned with what ought to be
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Microeconomics
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The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
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Macroeconomics
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The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
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Slope
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Dy/Dx
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Percent change
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(2nd value - 1st value)/1st value
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Three key Econ. ideas
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People are rational, People respond to economic incentives, Optimal decisions are made at the margin
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Rational
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Using all available information to achieve your goals, they compare the cost and benefits
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Allocative efficiency is achieved when firms produce goods and services
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That consumers value most
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Arlene quits her 125000 a year job to take care of her ailing parents. What is the opportunity cost of her decision?
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at least 125000
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By definition, economics is the study of
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the choices people make to attain their goals, given their scarce resources
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Economic models do all of the following except
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portray reality in all its minute details
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Economists assume that individuals
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are rational and respond to incentives
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Economists reason that the optimal decision is to continue any activity up to the point where the
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marginal benefit equals the marginal cost
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Holding all other personal characteristics such as age gender and income constant economists would expect that
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people with health insurance will be more likely to be overweight than people without health insurance
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How are the fundamental economic decisions determined in North Korea?
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Central planned economy
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in economics the term ________ means "additional or "extra"
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marginal
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Macroeconomics is the study of
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the economy as a whole
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Making optimal decisions "at the margin" requires
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weighting the costs and benefits of a decision before deciding if it should be pursued
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Marginal analysis involves undertaking an activity
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until its marginal benefits equal marginal costs
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Microeconomics is the study of
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how households and firms make choices
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Suppose the US government encouraged consumers to trade in their old automobiles for more efficient, new models by paying up to $5,000 for the old automobiles. These consumers would be exemplifying the economic idea that
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people respond to economic incentives
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The coffee nook, a small cafe near campus sells cappuccinos for 2.50 and russian tea cakes for 1 dollar each. What is the opportunity cost of buying a cappuccino
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2 1/2 Russian tea cakes
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they sell 2.50 for cappuccinos and tea cakes for 1 dollar, what is the opportunity cost of buying a Russian tea cake?
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2/5 of a cappuccino
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The highest valued alternative that must be given up to engage in an activity is the definition of
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opportunity cost
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The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of
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trade off
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The term ______ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade
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market
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Voluntary exchange between buyers and sellers generates _____ in a market economy
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allocative efficiency
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When production reflects consumer preferences ______ occurs
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allocative efficiency
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Where do economic agents such as individuals, firms and nations, interact with each other
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in any arena that brings together buyers and sellers
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Which of the following is a macroeconomics question?
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What determines the inflation rate?
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Which of the following is a microeconomics question?
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What factors determine the price of carrots
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Which of the following is a normative economic statement
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Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable
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Which of the following is a normative economic statement?
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The price of gasoline is too high
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Which of the following is a positive economic statement?
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if the price of iPhones falls, a larger quantity of iPhones will be purchased
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Which of the following is a positive economic statement
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Scarcity necessitates that people make trade offs
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Which of the following is not an example of an economic trade off that a firm has to make
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whether or not consumers will buy its products
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Which of the following statements is true about scarcity?
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Scarcity refers to the situation in which unlimited wants exceed limited resources
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Who receives the most of what is produced in a market economy?
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Those who are willing and able to buy them
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______ is a situation in which a good or service is produced at the lowest possible cost
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productive efficiency
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Marginal
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"extra" or "additional"
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Economists reason that the optimal decision is to continue any activity up to the point where the_______
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marginal benefit equals the marginal cost
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There is often a trade off between _______
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efficiency and equity
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percent change is
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new-old/old
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