Flashcards on Microeconomics Exam 1 Study Guide
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The definition of economics states that it is the study of how _________.
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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 a lower unemployment rate than Spain is a ___ statement since it describes what people _____
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Positive, Actually do
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The ethical implications of a hotly debated government policy would best be considered a _________.
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normative question, since it deals with a subjective issue based on personal preferences.
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Microeconomics studies _________, while macroeconomics studies _________.
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a small piece of the overall economy; the economy as a whole.
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Policy decisions made by the government are analyzed by _________.
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both microeconomics and macroeconomics.
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A policy such as taxes on cigarettes would be studied under _____, since it deals with ________
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microeconomics, a small part of the overall economy
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The three principles of economics include optimization, equilibrium, and empiricism.
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Empiricism describes a situation where economists use data to analyze what is happening in the world Optimization describes a situation where people weigh costs and benefits when making a decision Empiricism describes a situation where no one would benefit from changing his or her behavior
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Economics, anthropology, psychology, sociology, and political science all study human behavior. Economics differs from these other social sciences because it also addresses these three key concepts: _________.
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Optimization, 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 this: you can sign up for a gym membership, walk to work, take the stairs instead of the elevator, or watch your diet. How would you evaluate these options and choose an optimal one?
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Do a cost-benefit analysis to compare the alternatives.
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When making your decision about which activity to choose, you should consider the monetary cost _____ the opportunity cost of the activities. The goal is to choose the option that offers the greatest_____benefit.
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as well as, net
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During the process of optimization economists believe that people are considering _________.
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the feasibility of a 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 $20 each week for your entertainment budget. This money is spent on two items: either renting movies for $1 each at Redbox or downloading songs from iTunes at $1 each. Given this information, which of the following would represent your budget constraint for entertainment?
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Amount spent on iTunes + Amount spent at Redbox = $20.
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Your budget constraint for entertainment illustrates the concept of _____ since as you increase your purchases of one item, you_____
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trade-offs, must decrease your purchases of the other item
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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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Let'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 order: going to class, sleeping in late, going to work early, getting lunch, going to the gym to exercise, and watching television. If you decide to go to class, then what do we know about the opportunity cost of your decision?
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The opportunity cost would be sleeping in late, since it was your next-best option
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Comparing a set of feasible alternatives and picking the best one is an optimization process called _________.
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cost-benefit analysis.
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When deciding whether to install visible countdown timers for pedestrians at crosswalks, which of the following would be considered in the cost-benefit analysis? (Check all that apply.)
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all
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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 free-rider problem?
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all
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Which of the following is more susceptible to the free-rider problem: government minus funded symphonies or street lights?
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use of street light
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For a market to be in equilibrium, three conditions must hold. Fill in the blanks below to complete these conditions.
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equal, less than, greater than
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Which of the following is true regarding the concept of causation?
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It describes how one event can bring about change in another.
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Which of the following is not an example of causation?
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driving without car insurance will lead to an accident
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lower infant mortality is ____ and an improvement in nutrition is a ___
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an effect, the cause
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A surge in cocoa prices is ____ and a pest attack on the cocoa crop is
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an effect, the cause
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In which of the following areas will taking an economics course help benefit you throughout your life?
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all of the above
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The concept of opportunity cost is a measure of _________.
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the value of the best alternative use of a resource.
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Suppose there are three activities in which you could participate: 1. The opportunity cost of the first activity is missing 3 hours of work. 2. The opportunity cost of the second activity is missing a concert that you have tickets to. 3. The opportunity cost of the third activity is missing the afternoon nap that you take every day. Given this information, for which of these activities would you be able to compare opportunity costs?
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You can compare all the activities after you translate all the missed activities into dollar amounts
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Which of the following would not be considered one of the possible opportunity costs of a recent high school graduate starting their career right away by getting a full minus time jobstarting their career right away by getting a full−time job
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All of these is a possible opportunity cost.
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How does microeconomics differ from macroeconomics?
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Microeconomics is the study of how individuals, households, firms, and governments make choices, while macroeconomics is the study of the economy as a whole.
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Which of the following is not an item studied under macroeconomics?
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individual preferences
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Which of the following is true regarding the concept of causation?
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It describes how one event can bring about change in another.
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Which of the following is not an example of causation
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washing your car will lead to raining that day
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To say that economists use the scientific method means that they are using ___________.
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an ongoing process to develop models of the world and then test and evaluate those models
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How do economists distinguish between models that work and those that don't?
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They test their models against real-world data.
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They test their models against real-world data.
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The larger the sample size the better.
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Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. During a meeting with your client, the CEO asks if your economic models include all factors that impact gasoline prices. What is your response to his question?
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No, the model is a simplified representation of reality.
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Your client becomes critical of your "sloppy" technique of using a model that does not include all factors. What is the most appropriate reply to this criticism?
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Economic models are meant to be approximations that predict what happens in most circumstances.
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He is still unconvinced about the reliability of using economic models to make business decisions. You can answer this concern by sharing that you will confirm the accuracy of the model by ______ with ____
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testing it's predictions, empirical data
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What is meant by randomization in the context of an economic experiment?
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Subjects are assigned by chance, rather than by choice, to a group.
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As the text explains, it can sometimes be very difficult to sort out the direction of causality. Causation occurs when there is ____________.
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logical cause and effect relationship
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Demonstrate causation or correlation with the following examples
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police officers, lower, causation economic growth, higher, causation correlation
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The ___ implies that a college student who drops out of school one month before graduation should earn much less than a student who graduates.
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Signaling argument
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The ____ implies that a college student who drops out of school one month before graduation should earn almost the same as a student who graduates.
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human capital argument
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Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. Your client would like your team to perform a study on customers' gasoline purchasing habits when they notice price increases. You suggest that the team _____________.
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design and execute an experiment.
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Empiricism is a principle in economics that _________.
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uses data to test economic models.
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Optimization is the process that describes __________.
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the choices that people make
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Optimization in levels examines ___________, while optimization in differences analyzes ____________.
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total net benefits of alternatives; the change in net benefits.
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What is meant by comparative statics? Explain with an example.
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a change in outcome
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Economists mostly use optimization in differences, as opposed to optimization in levels, because ____________.
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comparing different features of alternatives is simple
