Question 1

Scientist

Accepted Answer

Try to understand the world

Question 2

Policy Advisors

Accepted Answer

Try to improve the world

Question 3

A Model

Accepted Answer

An abstraction, a simplified version of reality, easy to comprehend, makes accurate predictions, built on assumptions. ACCURATE PREDICTIONS ARE THE TEST OF A MODEL.

Question 4

Economist

Accepted Answer

Formulate Assumptions.

Assumptions simplify the world

Economist use model to study economic issues

Question 5

Ceteris Paribus

Accepted Answer

All other factors remain unchanged (Holding something constant)

Every decision made is by holding something constant

Question 6

Adam Smith

Accepted Answer

Father of Modern economics

Question 7

Exports

Accepted Answer

Produced domestically and sold abroad

Question 8

Imports

Accepted Answer

Produced abroad and sold domestically

Question 9

Absolute Advantage

Accepted Answer

The ability to produce a good using fewer inputs than other producer.

(Producing a ton of wheat uses 10 labor hours in the US vs. 25hrs in Japan.) ( the US has an absolute advantage.

Question 10

Comparative Advantage

Accepted Answer

the ability to produce a good at a lower opportunity cost than another producer

Question 11

Consumption Goods

Accepted Answer

Used up in less than a year

Question 12

Scarcity

Accepted Answer

Limited resources

Question 13

Scarce resources

Accepted Answer

Factors of production
Land, Labor, Capital, Entrepreneurship, Technology

Question 14

Interdependence

Accepted Answer

One fo the principles of economics:
1. Trade can make everyone better off.

Question 15

The Production Possibilities Frontier (PPF):

Accepted Answer

A graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology.

Question 16

Two measures of the cost of a good

Accepted Answer

Two countries can gain from trade when each specializes in the good it produces at lowest cost.

Absolute advantage measures the cost of a good in terms of the inputs required to produce it.

Recall: Another measure of cost is opportunity cost.

Question 17

product market

Accepted Answer

the market in which households purchase the goods and services that firms produce

Question 18

factor market

Accepted Answer

market in which firms purchase the factors of production from households

Question 19

circular flow diagram

Accepted Answer

a visual model of the economy that shows how dollars flow through markets among households and firms

Question 20

Suppose that Charles, an economist from a research institute in Texas, and Dina, an economist from a school of industrial relations, are arguing over government bailouts. The following dialogue shows an excerpt from their debate:

Dina: Thanks to recent financial crises, the concept of bailouts is a hot topic for debate among everyone these days.
Charles: Indeed, it's gotten crazy! A government bailout of severely distressed financial firms is unnecessary because free markets will properly price assets.
Dina: I don't know about that. Without a bailout of severely distressed financial firms, the economy will experience a deep recessi

Accepted Answer

There are two main reasons that economists tend to disagree: differences in values and differences in scientific judgments. In this case, the economists disagree due to differences in scientific judgments because they disagree about a factual matter: the type of policy needed to keep the economy functioning smoothly during a period of financial distress. In contrast, disagreement due to differences in values reflect differing assessments on fairness or equity.

Question 21

Despite their differences, with which proposition are two economists chosen at random most likely to agree

Accepted Answer

While many economic questions are open to debate, the field is largely in agreement on some points. For example, two economists chosen at random are most likely to agree that tariffs and import quotas generally reduce economic welfare. Indeed, one survey that 93% of economists agree with this proposition. It would be harder to find two randomly chosen economists who both agree with either of the other propositions.

Question 22

Microeconomics

Accepted Answer

is the study of how prices and quantities are determined through interactions between buyers and sellers (individuals and firms) in individual markets. Therefore, microeconomists are more likely to create models to analyze the decisions of firms (such as pricing) and those of consumers (such as shopping choices), as well as how government policies affect those decisions.

Question 23

Macroeconomics

Accepted Answer

is the study of factors that affect the entire economy. Therefore, macroeconomists tend to create models to analyze how aggregate phenomena such as growth, inflation, and unemployment respond to policy decisions of governments and central banks, changes in aggregate spending or savings, and supply or demand shocks.

Question 24

The effect of government regulation on a monopolist's production decisions

Accepted Answer

MICRO

Question 25

The effect of a large government budget deficit on the economy's price level

Accepted Answer

MACRO

Question 26

A consumer's optimal choice when buying a flat-screen TV

Accepted Answer

MICRO

Question 27

Based on this model, households earn income when firms purchase factors in factor markets

Accepted Answer

In the circular-flow model of an economy, households own all the factors of production. Households earn their income when firms purchase or rent these factors of production to use them to produce goods and services. Firms, in turn, earn revenue when households buy goods and services.

Question 28

Which of the following is true regarding this economic model?

Accepted Answer

While simple, the circular-flow diagram can still be useful for the purposes of modeling how dollars and resources move throughout an economy

Question 29

Based on this model, firms earn revenue whenhouseholds purchasegoods and services in product markets.

Accepted Answer

The shape of Japan's production possibilities frontier (PPF) should reflect the fact that as Japan produces more cars and fewer trucks, the opportunity cost of producing each additional car remains constant .

Question 30

Suppose Japan produces only trucks and cars. The resources that are used in the production of these two goods are not specialized—that is, the same set of resources is equally useful in producing both cars and trucks.

Accepted Answer

The shape of Bulgaria's production possibilities frontier (PPF) should reflect the fact that as Bulgaria produces more tablets and fewer cars, the opportunity cost of producing each additional tabletincreases .

Question 31

Suppose Bulgaria produces only cars and tablets. The resources that are used in the production of these two goods are specialized—that is, some resources are more suitable for producing cars than tablets, whereas others are more suitable for producing tablets than cars.

Accepted Answer

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Microeconomics Ch.2&3

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