Macroeconomics CH 1

Scarcity exists because:
there are not enough resources available to satisfy all of society’s wants and needs.
“Economics” is best defined as:
a social science that studies how individuals and societies makes choices regarding the use of scarce resources.
All of the following are macroeconomics topics except:
the reaction of a firm to an increase in the demand for its product.
Opportunity cost is:
the value of the best alternative that must be forgone when a choice is made.
Capital as a factor of production is best represented by:
a robot used on the assembly line of an automobile manufacturing facility.
Normative Economics:
Studies what should be, which requires a value judgement.
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Which of the following statements illustrates the fallacy of composition?
Some groups in the economy will benefit from a national health care plan, therefore the entire economy will benefit from such a plan.
Jenny left her job as a production engineer to start her own consulting business. She took $40,000 out of savings to rent an office and buy a computer and office furniture. As factor of production, Jenny is best described as a ___________ and the computer and office furniture are best described as _________.
an entrepreneur; capital
Stan earned an “A” on an economics exam after eating oatmeal and toast for breakfast. Stan’s friend, Steve decided to eat oatmeal and toast for breakfast on the day of his exam because he believed that what Stan had for breakfast determined his grade. Steve’s conclusion that eating oatmeal and toast resulted in Stan earning an “A” is an example of:
the fallacy of false cause (post hoc fallacy)
Sally had to decide between continuing work as an accountant or take a new job as a floral designer. She opted to be a floral designer. The income and benefits of the accounting job that Sally gave up represent her:
opportunity cost
Macroeconomics:
uses economic aggregates to measure the activity in the economy as a whole.
The fundamental economic problem society faces, forcing it to decide how to allocate resources and distribute output, is:
scarcity
“It is not fair that students have to pay to park on campus” is an example of a:
normative statement
Bob decided to take a walk rather than study for his economics exam. Assuming that studying for his exam is the best alternative use of his time, the opportunity cost of Bob’s walk is:
the understanding of economics that Bob could have gained if he had studied economics rather than take a walk.
Which of the following represents a positive macroeconomics statement?
Historically, the national unemployment rate is higher during severe economic downturns than during periods of substantial economic growth.
All of the following are examples of factors of production, or resources, except:
cash held in a corporate bank account
Microeconomics focuses primarily on:
the decisions and behaviors of individuals and firms.
The purpose of a good theory or model is to:
explain real world relationships.
The fallacy of division states that:
something that is beneficial to society as a whole is not necessarily beneficial to each part of society.
The term ceteris paribus means:
“all other things held constant” and is used to isolate the relationship between two vairables
Microeconomics
studies the behaviors of individuals and specific markets.
Macroeconomics
studies the economy as a whole.
“Everyone should have to learn something about economics in order to make more informed choices as consumers and voters.”
Normative statement
“If a government on tax on gasoline causes the price of gasoline to increase, people are likely to decrease the amount of gasoline they buy.”
Positive statement
“Individuals should be able to decide whether their social security contributions are kept in less risky government bonds or more risky stocks”
Normative statement
Capital refers to:
the physical plant and equipment used in production.
Entrepreneurs:
are the innovators and risk-takers who combine resources to produce an output.
John has observed that the stock market performs better in years when his favorite football team makes the playoffs. Therefore, he purchases more stock when his team is winning and sells off his stock when his team is losing.
False cause fallacy.
Anne works in the technical support industry and argues that since policies designed to discourage outsourcing would protect her job and make her better off, society as a whole would benefit from policies that discourage outsourcing.
Composition fallacy.
If the economy as a whole is better off due to free trade, then each member of the economy must also be better off as a result of free trade.”
Division fallacy.
The economy refers to:
the sum of all the decisions, or choices, made and actions taken by individuals and groups, including households, businesses, and government, that involve the use of any kind of resource
Economics is:
a social science the studies the choices individuals and societies make regarding the use of resources.
Microeconomics:
studies the decisions of individuals, households and firms and focuses on the interaction of buyers and sellers in specific markets and ther production decisions of firms.
Positive Economics:
deals with statements about what is, which can be tested against facts.
Normative Economics:
deals with statements of what should be and requires value judgements.
Resources:
can be categorized into: Land and other natural resources, labor services, capital (structures and equipment), and entrepreneurial ability.
Opportunity Cost:
the value of the best alternative use of the wood.
The fallacy of false cause ( post hoc fallacy or association-causation issue )
occurs when it is assumed that because one event follows another, the first event must have cause the second event.
The fallacy of division
occurs when it is incorrectly assumed that what is true for the whole is also true for each part of the whole.
The fallacy of composition
occurs when it is incorrectly assumed that what is true for the parts are also true for the whole.
Trade surplus
occurs when the value of exports exceeds the value of imports.
Trade deficit
occurs when the value of imports exceeds the value of exports.
Business firms
supply goods and services in the Product market.
Business firms
demand factors of production in the Resource market.
Households
demand goods and services in the Product Market.
Households
supply factors of production in the Resource Market.
The circular Flow model of economic activity:
illustrates the relationship between households and business firms in a market economy.
Households supply inputs, or factors of production, in:
resource markets.
Goods and services are exchanged in:
product markets.
Demand decisions are made by:
households in product markets and businesses firms in resource markets.
Supply decisions are made by:
households in resource markets and business firms in product markets.
In the circular flow of economic activity, business firms:
supply goods and service in product markets.
In the two-sector circular flow model of the economy:
business firms supply goods and services and demand factors of production.
The circular flow model depicts:
the inter-relationships of market participants in a capitalist economy.
In a market, or capitalist, economy, most payments for inputs or factors of production are made by:
business firms.
In a market, or capitalist, economy, most payments for goods and services are made by:
households (consumers).
A positive, or direct, relationship between two variables is illustrated by:
a line the slopes upward to the right
The slope of a line can be calculated by dividing the:
vertical change by the horizontal change between any two points on the line.
The slope of a line through the coordinates (6,1) and (2,3):
is -1/2
If the equation of a line is y= 10 -2x, then:
X and Y are inversely related.
If a function has a slope of 5 and a y-intercept of 2, the equation for this function is:
y=5x + 2
If a decrease in the price of airline tickets leads to a decrease in the quantity of supplied airline tickets, then the graph of the relationship between price of airline tickets and the quantity supplied of airline tickets will be a curve that slopes:
upward to the right indicating, a direct or positive, relationship between the price and quantity supplied of airline tickets.

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