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When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing

scarcity

Economics is the study of

How society manages its scarce resources

The phrase "no such thing as a free lunch" means

People must face tradeoffs

Efficiency

Refers to how much a society can produce w/ its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society.

A production possibilities frontier can shift outward if

There is a technological improvement

When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good

increases as more of the good is produced

Making rational decisions "at the margin" means that people

compare the marginal costs and marginal benefits of each decision

Laws that restrict the smoking of cigarettes in public places are examples of government intervention that is intended to reduce

externalities

The consumer price index is used to

Monitor changes in the cost of living over time

The inflation rate is defined as the

Percentage change in the price level from the previous period

The inflation rate you are likely to hear on the nightly news is calculated from

CPI

The steps involved in calculating the consumer price index and inflation rate, in order:

Fix the basket, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate

If the consumer price index was 88 in 2009, 95 in 2010, and 100 in 2011, then the base year must be

2011

Total income from the domestic production of final goods and services equals

The expenditures for these goods whoever buys them

Over time, people have come to rely more on market-produced goods & services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

Caused measured GDP to rise

Transactions involving items produced in the past, such as the sale of a 5 yr old automobile by a used car dealership or the purchase of an antique rocking chair by a person at a yard sale are

not included in current GDP b/c GDP only measures the values of goods & services produced in the CURRENT year

A U.S. publisher purchases new computers that were manufactured in U.S. This purchase by itself makes

A positive contribution both to consumption and GDP

The local Chevrolet dealership has an increase in inventory of 25 newly produced cars in 2006. In 2007, it sells 25 cars.

The value of cars in inventory will be counted as part of 2006 GDP, and the value of cars sold in 2007 will not increase 2007 GDP

If net exports is a negative number for a particular year, then

The value of foreign goods purchased exceeded the value of goods sold to foreigners during the current year

For most students, the largest single cost of college education is

The wages given up to attend school

To improve living standards, policy makers should

formulate policies designed to increase productivity

Correct about relationship of unemployment & inflation

In the short run, falling inflation is associated with rising employment

If U.S. decided to trade w/ Mexico, we know that

Both can benefit

Economic models

Incorporate simplifying assumptions that often contradict reality, but also helps economists better understand reality

The term market failure refers to

A situation in which the market on its own fails to allocate resources efficiently

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