Test Bank For Principles of Macroeconomics 13th Edition By
Karl E. Case; Ray C. Fair; Sharon E.
Economics - ANSWER: study of how people and societies choose to allocate scarce
resources
Key economic ideas - ANSWER: 1. Tradeoffs
2. Opportunity costs
3. Rational decisions
4. Incentives
5. Margin
Explicit cost - ANSWER: requires an outlay of cash
Implicit cost - ANSWER: does not require an outlay of cash
Total opportunity cost equations - ANSWER: TOC = Explicit costs + Implicit Costs
Marginal benefit equation - ANSWER: MB = change in TB / change in activity
Marginal cost equation - ANSWER: MC = change in TC / change in activity
Optimum is obtained when... - ANSWER: MC = MB
Every society much decide... - ANSWER: 1. WHAT to produce
2. HOW to produce
3. FOR WHOM to produce
4. Now vs. Future
Economic system is... - ANSWER: a system in which all 4 question are answered.
Centrally-planned economies. - ANSWER: The government decides on the 4
questions.
Market economies. - ANSWER: The individuals and businesses and the interaction
between the two decide on the 4 questions.
Mixed economies. - ANSWER: The government and the individuals/businesses decide
on the 4 questions.
Productive efficiency. - ANSWER: Goods and services produced at lowest possible
cost.
Allocative efficiency. - ANSWER: Production is consistent with consumers'
preferences.
, Market failures. - ANSWER: When market ceases to allocate resources efficiently.
Instances the government can improve market outcomes. - ANSWER: 1. Gov't
enforces property rights (police, courts, etc.)
2. Subsidize and tax.
3. Equity (gov't steps in to make the outcomes fair).
Economic model. - ANSWER: Theory based on assumptions from which solutions to
economic problems ca be deduced. Highly simplified version of reality.
Key features of models. - ANSWER: 1. Assumptions and Simplifications
2. Testable
3. Variables
Exogenous variables. - ANSWER: Determined outside the model (ex. income).
Shifting the curve.
Endogenous variables. - ANSWER: Determined within the model (ex. price and
quantity). Moving along the curve.
Positive analysis. - ANSWER: Study of what is.
Can be tested against real world behavior.
Normative analysis. - ANSWER: Study of what ought to be.
Cannot be tested.
PPF. - ANSWER: Simple model showing maximum combinations of 2 goods/services
that society can produce given its limited resources and technology at a given point
in time.
Assumptions under PPF. - ANSWER: 1. 2 goods/services
2. Limited resources
3. Limited technology
4. One point in time.
Characteristics of PPF. - ANSWER: 1. Scarcity
2. Tradeoffs
3. Opportunity cost
4. Efficiency
5. Inflation
6. Economic Growth
Unemployment. - ANSWER: Not using all available resources.
Underemployment. - ANSWER: Using all resources, but not in the best possible
manner.
Karl E. Case; Ray C. Fair; Sharon E.
Economics - ANSWER: study of how people and societies choose to allocate scarce
resources
Key economic ideas - ANSWER: 1. Tradeoffs
2. Opportunity costs
3. Rational decisions
4. Incentives
5. Margin
Explicit cost - ANSWER: requires an outlay of cash
Implicit cost - ANSWER: does not require an outlay of cash
Total opportunity cost equations - ANSWER: TOC = Explicit costs + Implicit Costs
Marginal benefit equation - ANSWER: MB = change in TB / change in activity
Marginal cost equation - ANSWER: MC = change in TC / change in activity
Optimum is obtained when... - ANSWER: MC = MB
Every society much decide... - ANSWER: 1. WHAT to produce
2. HOW to produce
3. FOR WHOM to produce
4. Now vs. Future
Economic system is... - ANSWER: a system in which all 4 question are answered.
Centrally-planned economies. - ANSWER: The government decides on the 4
questions.
Market economies. - ANSWER: The individuals and businesses and the interaction
between the two decide on the 4 questions.
Mixed economies. - ANSWER: The government and the individuals/businesses decide
on the 4 questions.
Productive efficiency. - ANSWER: Goods and services produced at lowest possible
cost.
Allocative efficiency. - ANSWER: Production is consistent with consumers'
preferences.
, Market failures. - ANSWER: When market ceases to allocate resources efficiently.
Instances the government can improve market outcomes. - ANSWER: 1. Gov't
enforces property rights (police, courts, etc.)
2. Subsidize and tax.
3. Equity (gov't steps in to make the outcomes fair).
Economic model. - ANSWER: Theory based on assumptions from which solutions to
economic problems ca be deduced. Highly simplified version of reality.
Key features of models. - ANSWER: 1. Assumptions and Simplifications
2. Testable
3. Variables
Exogenous variables. - ANSWER: Determined outside the model (ex. income).
Shifting the curve.
Endogenous variables. - ANSWER: Determined within the model (ex. price and
quantity). Moving along the curve.
Positive analysis. - ANSWER: Study of what is.
Can be tested against real world behavior.
Normative analysis. - ANSWER: Study of what ought to be.
Cannot be tested.
PPF. - ANSWER: Simple model showing maximum combinations of 2 goods/services
that society can produce given its limited resources and technology at a given point
in time.
Assumptions under PPF. - ANSWER: 1. 2 goods/services
2. Limited resources
3. Limited technology
4. One point in time.
Characteristics of PPF. - ANSWER: 1. Scarcity
2. Tradeoffs
3. Opportunity cost
4. Efficiency
5. Inflation
6. Economic Growth
Unemployment. - ANSWER: Not using all available resources.
Underemployment. - ANSWER: Using all resources, but not in the best possible
manner.
