Review for Exam 1 - Chapter 1 Welcome to Economics

Economics may best be defined as the:

• interaction between macro and micro considerations.

• social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

• empirical testing of value judgments through the use of logic.

• use of policy to refute facts and hypotheses.

For economists, the word "utility" means:

• versatility and flexibility.

• rationality.

• pleasure and satisfaction.

• purposefulness.

The word "economy" comes from the Greek word oikonomos, which means

• A. "environment"

• B. "production."

• C. "one who manages a household."

• D. "one who makes decisions."

Scarcity refers to

• the ability of society to employ all of its resources.

• the ability of society to consume all that it produces.

• the inability of society to satisfy all human wants because of limited resources.

• the inability of society to eliminate poverty.

People always face trade-offs because

• they always have more than one use for their time and money.

• they buy goods with money.

• trading takes place in a market economy.

• they can make themselves better off through trade.

The phrase “no such thing as a free lunch” means

• A. people must face tradeoffs.

• B. rational people think at the margin.

• C. people respond to incentives.

• D. trade can make everyone better off.

The value of the best alternative sacrificed to obtain something you want is referred to as

• explicit cost

• opportunity cost

• marginal cost

• sunk cost

A rational decision maker takes an action if and only if

• the average benefit of the action exceeds the average cost.

• the average cost of the action exceeds the average benefit.

• the marginal benefit of the action exceeds the marginal cost.

• the marginal cost of the action exceeds the marginal benefit.

All of the following are examples of physical capital EXCEPT

• A. buildings.

• B. machinery.

• C. company stocks and bonds.

• D. a hydroelectric power plant.

Economic scarcity: A. is peculiar to the United States economy. B. applies to all economies. C. is peculiar to command systems. D. is peculiar to market systems.

• is peculiar to the United States economy.

• applies to all economies.

• is peculiar to command systems.

• is peculiar to market systems.