Carefully define the following terms, and explain their importance in economics.
a. Opportunity cost
b. Abstraction
c. Theory
d. Model
e. Marginal analysis
What will be an ideal response?
a. Opportunity cost for a decision is the value of the next best alternative that one has to give up because of that decision. It is central to rational thinking and economic analysis.b. Abstraction is ignoring many details in order to focus on the most important elements of a problem. The appropriate degree of abstraction depends on the topic under consideration.c. Theory is a deliberate simplification of relationships with the purpose of explaining how those relationships work. Theory is cause-and-effect reasoning.d. A model is a simplified, small-scale version of some aspect of the economy. Much economic analysis employs models of one or more parts of the economy.e. Marginal analysis is making decisions based on a comparison of the increase or change in benefits to the increase or change in costs when making some sort of change.
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Relative to when a patient has first-dollar medical insurance, the loss in total economic surplus would be smaller if:
A. medical care providers had to pay the full marginal cost of medical care. B. the patient had to pay at least some of the marginal cost of medical care. C. the patient had to pay less of the marginal cost of medical care. D. medical care providers had to pay more of the marginal cost of medical care.
A linear downward-sloping demand curve has price elasticities (in absolute values) that
A) remain constant along the demand curve. B) decrease as price decreases. C) increase as price decreases. D) are greater than or equal to 1.
Assume that inventories declined by more than analysts predicted. This implies that
A) planned aggregate expenditure was less than real GDP. B) planned aggregate expenditure is unrelated to real GDP. C) planned aggregate expenditure was greater than real GDP. D) planned aggregate expenditure was equal to real GDP.
If 130 million individuals are employed and 6 million are unemployed, what is the unemployment rate?
a. 4.8 percent b. 3.0 percent c. 4.4 percent d. 4.6 percent e. 9.6 percent