Exam 1

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Which of the following will shift the production possibilities curve to the right?

a technological advance that allows farmers to produce more output from given inputs

The production possibilities curve tells us

the combinations of two goods that can be produced with society's available resources.

Refer to the above diagram. An improvement in technology will

shift the production possibilities curve from PP1 to PP2.

(Last Word) The "after this, therefore because of this" fallacy states that:

cause and effect can be determined merely by observing the sequence of events.

(Last Word) The fallacy of composition states that:

generalizations pertaining to individuals always apply to the group.

The marginal cost curve is:

upsloping because of increasing marginal opportunity costs.

Refer to the above diagram. The equation that shows the relationship between Y and X is:

Y = 50 + 1/4 X.

In economics, the pleasure, happiness, or satisfaction received from a product is called:

Utility.

Refer to the budget line shown in the diagram above. If the consumer's money income is $20, which of the following combinations of goods is unattainable?

4 units of C, and 6 units of D.

Other things equal, an increase in a consumer's money income:

shifts her budget line rightward because she can now purchase more of both products.

Assume that if the interest rate that businesses must pay to borrow funds were 20 percent, it would be unprofitable for businesses to invest in new machinery and equipment so that investment would be zero. But if the interest rate were 16 percent, businesses will find it profitable to invest $10 billion. If the interest rate were 12 percent, $20 billion would be invested. Assume that total investment continues to increase by $10 billion for each successive 4 percentage point decline in the interest rate. Refer to the above graph. Which of the following is the correct graphical presentation of the indicated relationship?

line A

If the production possibilities curve were a straight downsloping line, this would suggest that:

resources are perfectly shiftable between the production of these two goods.

Economics involves marginal analysis because:

most decisions involve changes from the present situation.

The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:

creative destruction.

An economic system:

is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.

The market system's answer to the fundamental question "How will the system promote progress?" is essentially:

"Through the profit potential that encourages development of new technology."

Which of the following is not a characteristic of the market system?

government ownership of the major industries.

In terms of the circular flow diagram, households make expenditures in the _____ market and receive income through the _____ market.

product; resource

Refer to the above diagram. Arrows (1) and (3) are associated with:

the resource market.

The use of money contributes to economic efficiency because:

it promotes specialization by overcoming the problems with barter.

Refer to the above diagram. Flow (1) represents:

wage, rent, interest, and profit income.

Which of the following is a limitation of the simple circular flow model?

the determination of product and resource prices is not explained.

Consumer sovereignty refers to the:

idea that the decisions of producers must ultimately conform to consumer demands.

Which of the following best illustrates the circular flow model in action?

All of the above.

Refer to the above diagram. Arrows (1) and (2) represent:

resources and goods respectively.

The competitive market system:

encourages innovation because successful innovators are rewarded with economic profits.

The invisible hand promotes society's interests because:

individuals pursuing their self-interest will try to produce goods and services that people in society want and are willing to purchase.

In a competitive economy, prices:

do all of these.

Macroeconomics can best be described as the: - study of the large aggregates of the economy or the economy as a whole.

Study of the large aggregates of the economy or the economy as a whole

"Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity." This statement is:

positive and correct.

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