Economics: Complete Exam Set

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The North Korean government owns all property and all economic output. Almost all imports are banned, and production of goods and services by foreign companies is forbidden. This would be an example of a free enterprise economy.

False

to sell a state-run firm to individuals

privatize

What does it mean to privatize?

to sell a state-run firm to an individual

Why does even a free market economy need some government intervention?

to provide for things that the marketplace does not address

to provide for things that the marketplace does not address

government funding of education.

What might be a hardship for citizens of a centrally planned economy making a transition to a market-based system?

Workers would lose job security and guaranteed incomes.

The terms Socialism and Communism can be used interchangeably.

False

requiring strict obedience to someone such as a dictator

authoritarian

What is an important advantage of a free market?

It offers a wide variety of goods and services.

paid effort that people devote to a task

Labor

What is the difference between a scarcity and a shortage?

A scarcity occurs when there are limited quantities to meet unlimited wants, and a shortage occurs when a good or service is unavailable.

Justine bought a new sewing machine for one of the seamstress in her alterations shop. What kind of production factor is being depicted in this scenario?

physical capital

In utilizing the factors of production, entrepreneurs are limited by how much they can produce because:

the factors of production are limited.

Any resources that are made by humans and used to create other goods and services are called

capital

physical objects that can be exchanged

goods

temporary lack of one or more goods

shortage

limited quantities of resources to meet unlimited needs or desires

scarcity

Which of the following lists would an economist consider to be land?

iron ore, natural gas, fertile soil, water

Scarcity exists because there are limited resources to meet unlimited wants and needs.

True

Stores running out of a certain toy in the month of December is an example of:

shortage

Which of the following is an example of scarcity, rather than shortage?

A person wants an endless supply of everything but cannot have it.

In utilizing the factors of production, entrepreneurs are limited by how much they can produce because:

the factors of production are limited.

An example of a shortage is limited amounts of

food available because the trucks carrying it are on strike.

Diamonds have a higher monetary value than water because:

diamonds are scarce.

Education is considered an investment in human capital because it increases a worker's knowledge of their field.

True

A nondurable good lasts for less than three years when used on a regular basis.

True

When manufactured goods are used to produce other goods and services, they are called capital goods.

True

service

work that is performed for someone

The situation in which some necessities have little value while some non-necessities have a much higher value is known as

paradox of value.

Economic growth occurs when a nation's total output of goods and services increases over time

True

What is the difference between a scarcity and a shortage?

A scarcity occurs when there are limited quantities to meet unlimited wants, and a shortage occurs when a good or service is unavailable.

An example of a shortage is limited amounts of

food available because the trucks carrying it are on strike.

In this passage, Adam Smith is describing the basic economic concept of

division of labor

Henry Ford was ultimately able to sell more cars because of the success of his assembly line.

True

good

an item that is economically useful or satisfies an economic want

A nation's wealth refers to a worth that can be expressed in dollars and cents.

False

market

location or other mechanism that allows buyers and sellers to exchange a certain economic product

human capital

the sum of the skills, abilities, health, and motivation of people

Deciding whether to do or use one additional unit of some resource

thinking at the margin

limited quantities of resources to meet unlimited needs or desires

scarcity

What can a decision-making grid do?

help you determine some of the opportunity costs for your decision

Which of the following is the kind of decision that can be made at the margin?

whether or not to hire new workers

A person has a choice between an apple or an orange. The person chooses the apple. What is the opportunity cost of choosing the apple?

The value of what was not chosen.

According to the "guns or butter" example, if a country decides to spend more on military goods, which of the following will happen?

The country will have less money to devote to consumer goods.

Economists state that every decision involves trade-offs. Economists measure and define these trade-offs as:

opportunity costs.

The opportunity cost of a decision can be examined by using a

production possibilities graph.

all the possible alternatives that are rejected when a choice is made

trade-offs

What is the opportunity cost of a decision?

the most desirable alternative given up for the decision

A nondurable good lasts for less than three years when used on a regular basis.

True

An example of a shortage is limited amounts of

food available because the trucks carrying it are on strike.

The circular flow of economic activity describes an economy that is free of markets.

False

A nation's wealth refers to a worth that can be expressed in dollars and cents.

False

Which of the following is characteristic of a traditional economy?

Children tend to have the same jobs as their parents did.

In what kind of economy does the government decide on production and consumption?

Command economy

What is the function of an economic system?

to produce and distribute goods and services

market-based economic system with limited government involvement

mixed economy

the method used by society to produce and distribute goods and services

economic system

Which of the following does a government provide as part of a safety net for the people?

unemployment compensation

A command economy answers the question of what to produce by:

the dictates of government policy.

In a market economy, the government decides what to produce.

False

government programs that protect people experiencing unfavorable economic conditions

Safety net

Brian is starting his own business producing chairs designed to be used while playing video games. This is an example of _________.

specialization

Which of the following statements regarding the circular flow model is not accurate?

Households supply firms with goods and services.

An example of laissez-faire, is the government deciding what to produce and how to produce it.

False

A ___________ is an economy in which private enterprise exists with considerable government regulation.

mixed economy

Suppose there is a family in which all the boys are expected to become farmers when they are adults, just as their fathers and grandfathers did. In which kind of economy do they participate?

traditional economy

market-based economic system with limited government involvement

mixed economy

What is an important advantage of a free market?

It offers a wide variety of goods and services.

a philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society

socialism

a large Soviet farm leased from the state to groups of peasant farmers

collective

requires a large capital investment to produce items in other industries

heavy industry

A person believes that real equality can only exist when political equality is coupled with economic equality. This person believes that democratic means should be used to distribute wealth evenly throughout society. This person is a

socialist

Joseph Stalin introduced communism to Russia in 1917.

False

Communism is a political system where all economic and political power rest in the hands of the central government.

True

Shortages of non priority goods and services is typically found in which economy?

centrally planned economy

Why do markets exist?

Markets allow people to buy what they need to consume and sell the specialized goods and services they produce.

What is the product market?

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

Suppose there is a family in which all the boys are expected to become farmers when they are adults, just as their fathers and grandfathers did. In which kind of economy do they participate?

traditional economy

microeconomics

area of economics that deals with behavior and decision making of small units

demand

the desire, ability, and willingness to buy a product

A demand schedule shows

a listing of the various quantities demanded of a particular product at all prices that might prevail in the market.

The change from the old demand curve to the new demand curve shown in the table represents a

shift of the demand curve to the right.

A demand curve illustrates the quantity demanded at every possible price at a given time.

True

According to this demand curve, how many movie videos will be demanded at a price of $10?

1000

When the price of an item decreases, the quantity demanded increases. When the price of an item increases, the quantity demanded decreases.

True

marginal utility

the extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product

demand curve

graph showing the quantity demanded at each and every price at a given time

Find the price of $15 on the demand schedule. What point does this price and quantity correspond to in the graph?

x

Based on the graph, how does the market demand for concert tickets change if the price increases from $30 to $40?

quantity demanded decreases by 4,000

The Law of Demand states that more of a product will be purchased at lower prices than at higher prices.

True

Ceteris paribus means "put your two cents in".

False

In general, movement along the demand curve illustrates

a change in thequantity demanded

Which of the following choices is a movement along the demand curve showing that a different quantity is purchased in response to a change in price?

change in quantity demanded

substitutes

products that can be used in place of other products

Based on this passage, McDonald's is serving rice in its Indonesian restaurants as a __________ because of the _____________ in the price of potatoes.

a substitute / increase

Marginal utility is the extra usefulness or satisfaction a person gets from acquiring or using one more unit of a product.

True

Consumers' willingness to replace a costly item with a less costly item is an example of

the substitution effect.

What does the movement shown on this graph represent?

the inverse relationship between price and quantity demanded

Which of the following does not decrease the demand for a product?

improved product technology

Advertising, fashion trends, and new product introductions serve to

create consumer demand.

According to this demand curve, if the price of movie videos increases from $14 to $16, the quantity demanded will

fall from 600 to 400.

Joe goes to the grocery store to buy steak. He expects that he will be spending $5.99 per pound for his steak as there is only one brand to choose from and their price has remained the same for about a year. However, to Joe's surprise, the grocery store has begun selling a generic store brand of the same cut of steak for $3.99 per pound. Joe decides that to save the $2.00 per pound he will try to store brand steak.
Based on the information provided above, which of following terms bests describes the scenario that occurred?

Substitution effect

If the demand for beef decreased because a society focused more on vegetarianism the cause for the change would be _______.

preferences.

If the price of a product goes down by 10% and the quantity demanded goes up by 20% the product is:

elastic

When a customer's need for a product is not urgent, demand tends to be

elastic.

Which products shown in the table are likely to have inelastic demand?

gasoline in general, services of medical doctors

Which of the following best describes demand elasticity?

Measures if a change in price will cause a larger, smaller, or proportional change in the quantity demanded.

elasticity

a measure of reponsiveness that shows how a dependent variable variable such as quanitity responds to an independent variable

Based on this passage, McDonald's is serving rice in its Indonesian restaurants as a __________ because of the _____________ in the price of potatoes.

a substitute / increase

A demand curve illustrates the quantity demanded at every possible price at a given time.

True

inelastic

describes demand when a given change in price causes a relatively smaller change in the quantity demanded

unit elastic

describes demand when a given change in price causes a proportional change in the quantity demanded

Because a price increase has little or no effect, the demand for the product is

inelastic.

The measure of responsiveness relating a change in quantity demanded to a change in the price of an item is known as ________.

demand elasticity

Which of these events would indicate a movement along a supply curve for batteries?

Battery manufacturers raise the price of eight AA batteries from $3.50 to $3.95 a set.

According to Figure 5.4, how many slices of pizza will one pizzeria be willing to supply at a market price of $1.50 a slice?

200

a chart that lists how much of a good a single supplier will offer at various prices

supply schedule

Which of the following is the best example of the law of supply?

A sandwich shop increases the number of sandwiches they supply every day when the price is increased.

the tendency of suppliers to offer more of a good at a higher price

law of supply

When a manufacturer of pain medication reduced the price of the medication by 30%, revenue declined by almost exactly 30%, which means that the demand for the item did not go up or down. Based on this information, demand for the product is

inelastic

Advertising, fashion trends, and new product introductions serve to

create consumer demand.

a chart that lists how much of a good all suppliers will offer at different prices

market supply schedule

The market price of a slice of pizza has risen from $1.50 to $2.00. Based on the Market Supply Curve in Figure 5.4,the average pizzeria would respond by _________.

making 500 more slices a day.

Because a price increase has little or no effect, the demand for the product is

inelastic.

elasticity

a measure of responsiveness that shows how a dependent variable such as quantity responds to an independent variable such as price

income effect

change in quantity demaned due to a change in price that alters a consumer's real income

According to the table, which of the following happens when an eighth person is hired at the beanbag company?

A negative marginal return is created.

An entrepreneur knits sweaters for sale. The entrepreneur has fixed costs of $100. When he makes 10 sweaters in one month, he must spend $15 on wool. To make eleven sweaters in one month, he must spend $17 on wool. If he has no other costs, what is the marginal cost of the eleventh sweater?

$2

A firm will produce a level of output at which marginal revenue is equal to:

marginal cost.

When the selling price of a good goes up, what is the relationship to the quantity supplied?

It becomes practical to produce more goods.

a cost that rises or falls depending on how much of that product is produced

variable cost

the cost of producing one more unit of a good

marginal cost

Profits are maximized when marginal revenue and marginal costs are ________.

equal

According to the graph of marginal product of labor for a company that makes beanbags, which of the following situations is created when the fourth through seventh workers are hired?

diminishing marginal returns

the change in output from hiring one additional unit of labor

marginal product of labor

fixed costs plus variable costs

total cost

A business doubled the price of a product in order to increase profits. Which of the following scenarios might have occurred?

A dramatic decline in revenues demonstrated the elasticity of the product.

Which is an example of a monthly fixed cost for a sandwich shop?

rent

The cost of producing one more unit of a good is the:

marginal cost

the amount a supplier is willing and able to supply at a certain price

quantity supplied

What do sellers do if they expect the price of goods they have for sale to increase dramatically in the near future?

store the goods until the price rises

a government payment that supports a business or market

subsidy

What is the effect of import restrictions on prices?

They cause prices to rise

government intervention in a market that affects the production of a good

regulation

The number of suppliers that enter and leave the market has no effect on the amount of goods or services supplied.

False

a payment to the government on the production or sale of a good

excise tax

Which of the following is an example of government influence on supply?

subsidies

a level of production in which the marginal production decreases with new investment

diminishing marginal returns

What happens to a market in equilibrium when there is an increase in supply?

Quantity supplied will exceed quantity demanded, so the price will drop.

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