Chapter 1

Question 1

Microeconomics focuses on

Answer 1

decisions made by individual households and firms.

Question 2

The rationality assumption implies that

Answer 2

individuals will not intentionally make decisions that leave them worse off.

Question 3

The ceteris paribus assumption means

Answer 3

nothing changes except the factor or factors being studied, “other things constant”, “other things equal”

Question 4

Each country has a unique economic system to allocate its scarce resources. However, the economic system of most of the world’s nations are a combination of the _____ system and the ____ system.

Answer 4

central planning; price

Question 5

To which of the following household-types does the phrase “unlimited wants and limited resources” apply?

1) a low-income household
2) a middle-income household
3) a high-income household

Answer 5

1, 2, and 3

Question 6

The ultimate purpose of economics is

Answer 6

to study how individuals make choices

Question 7

Decisions must frequently be made by​ individuals, organizations, and even nations. Facilitating better​ decision-making is a fundamental goal of economics. The analytical framework advocated by economists that enables one to make informed decisions is called

Answer 7

the economic way of thinking

Question 8

Based on the recommendation of a​ friend, you buy a ticket and attend a movie with high expectations. After seeing the​ movie, you think that it is the worst film ever made and that it was a complete waste of money. Is this consistent with the rational behavior assumption?

Answer 8

is consistent with rational behavior because you had thought that you were going to like the movie.

Question 9

Economics is

Answer 9

the study of how limited resources are allocated to satisfy unlimited wants

Question 10

What is the relationship between wants and​ resources?

Answer 10

Resources are used to produce things that satisfy​ people’s wants.

Question 11

Economists assume that an individual acts as if motivated by

Answer 11

self-interest

Question 12

what is the goal unemployment rate?

Answer 12

5%

Question 13

the business cycle is every?

Answer 13

5.6 years

Question 14

what does rising interest rate hint?

Answer 14

that we are headed for a recession

Question 15

what is the goal inflation rate?

Answer 15

2%

Question 16

what should you do to get through a recession

Answer 16

save money

Question 17

the more we spend, the more prices ___. interest rates ___ to keep people from spending

Answer 17

go up; rise

Question 18

what are the 3 functions of money and what do they stand for?

Answer 18

medium of exchange = paying for something
store of value = your savings
unit of account = comparison of prices based on wants and needs

Question 19

households account for ____ of the economy

Answer 19

70%

Question 20

what are the 3 basic questions every economy must ask and answer?

Answer 20

1) what and how much to produce
2) how to produce it
3) who gets it

Question 21

what are the 3 economic systems?

Answer 21

1) communism - when you have centralized control
2) socialism - mixed
3) capitalism - have a price/market system

Question 22

______ makes the world go round and makes economics work

Answer 22

self-interest

Question 23

what is the definition of wants

Answer 23

what people would buy if their incomes were unlimited

Question 24

We never have enough of everything, including _____, to satisfy our every desire.

Answer 24

time

Question 25

what is the study of decision making under taken by individuals (or households) and by firms. it is like looking under a microscope to focus on the smaller parts of the economy.

Answer 25

microeconomics

Question 26

what is the study of the behavior of the economy as a whole. it deals with economy wide phenomena.

Answer 26

macroeconomics

Question 27

macroeconomics deals with _____, or totals - such as total output in an economy.

Answer 27

aggregates

Question 28

modern economic theory blends ____ and ____ concepts

Answer 28

micro and macro

Question 29

what is the institutional mechanism through which resources are utilized to satisfy human wants

Answer 29

economic system

Question 30

in which economic system does the authority make all economic decisions

Answer 30

centralized command and control (central planning)

Question 31

in which economic system is there a decentralized decision making process, in which prices are terms (signals) under which people agree to make exchanges

Answer 31

price system (market system)

Question 32

Economists assume that individuals act as if motivated by _____ and respond predictably to opportunities for gain.

Answer 32

self-interest

Question 33

people make choice by balancing the ____ and _____

Answer 33

costs and benefits

Question 34

defining self-interest: | what is the pursuit of ones goals?

Answer 34

prestige, friendship, and love | it does not always mean increasing one's wealth (it could mean wanting to give money to a charity)

Question 35

economics is a ____ science

Answer 35

social

Question 36

economics uses _____ to explain economic phenomena in the real world

Answer 36

models

Question 37

what are simplified representations of the real world used as the basis for predictions or explanations

Answer 37

models or theories

Question 38

models and theories should capture only the _______ that are sufficient to analyze a problem.

Answer 38

essential relationships

Question 39

models and theories ____ be faulted as unrealistic simply because they do not capture all details of the real world.

Answer 39

cannot

Question 40

a ___ is the quintessential model

Answer 40

map

Question 41

what are the set of circumstances in which a model is applicable

Answer 41

assumptions

Question 42

every model, or theory, must be based on a set of ____

Answer 42

assumptions

Question 43

economic models predict how people ____, not how they think

Answer 43

react

Question 44

what economics is an approach to the study of consumer behavior: it emphasizes psychological limitations and complications that may interfere with rational decision making

Answer 44

behavioral economics

Question 45

proponents of behavioral economics believe that it is "unrealistic" to assume:

Answer 45

unbounded selfishness unbounded willpower unbounded rationality

Question 46

the hypothesis that people are nearly, not fully, rational

Answer 46

bounded rationality

Question 47

what are purely descriptive statements or scientific predictions, such as "if A, then B". A statement of what is

Answer 47

positive economics

Question 48

what is an analysis involving value judgments; it relates to whether things are good or bad. A statement of what ought to be

Answer 48

normative economics