Economics Chapters 1-3

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


An example of a shortage is limited amounts of

Food available because the trucks carrying it are on strike

To resources used to make all goods and services are the

factors of production

All of the following are types of decisions that can be made at the margin EXCEPT

whether or not to go on a vaction

The purpose of a production possibilites graph is to

show alternative ways to use an economy's resources

An efficient economy is one that

uses its resources to make the most goods and services

The law of increasing costs means that when an economy increases the production of one item

the opportunity cost goes up

The government of a country must make a decision between increasing military spending and subsidizing wheat farmers. This kind of decision is a

guns or butter issue

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

production possibilities graph

Production possibilities frontiers curve when they are charted on a graph because they show

the increasing costs resulting in increasingly less output

Why are all goods and services scarce?

all resources are scarce

What is the opportunity cost of a decison?

the most desirable alternative given up for the decision

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

whether or not to hire new workers

What is a factory building an example of?

physical capital

The government of a country must make a decision between spending money on a hospital or spending the same amount on border security. What kind of decision is this?

guns or butter

How would you describe an economy that uses its resources to make the greatest possible number of goods and services?


What does a production possibilites frontier show?

the maximum amount that an economy can produce

The lack of which of the following represents a scarcity?

enough workers to finish two jobs because there's a limited supply of workers

Which of the following makes someone an entrepreneur?

running a service that hires people to install sprinkler systems in lawns

A country's production possibilities increase because the available workers become more skilled at using a computer. This is an example of growth caused by


You bought two new CDs with the last $30 in your checking account, and your next payday is on Monday. What is the opportunity cost of these CDs?

dinner and a movie with your friends this Saturday night

A nation's automakers install new robotic machinery to build cars. Now, cars take only a day to make, and the factories can produuce many mor ecars than before. This is an example of groth cause by


One example of an entrepreneur is

an artist who runs a business painting murals in office buildings and restaurants

Which of the following is a "guns or butter" decision?

A country must decide whether to use its steel to build new fighter jets or new sports cars

What can a decision making grid do?

help you determine some of the opportunity costs for your decision

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

iron ore, natural gas, fertile soil, water

One example of thinking at the margin is

deciding whether the benefit of working tw extra hours per day is worth the sacrifice of study time

The community of Desertville traditionally produces a large number of tires and a small amount of kiwi fruit. Kiwis are become increasingly popular, and Desertville has decided to expand kiwi cultivation and decrease tire manufacturing. According too the law of increasing costs,

the cost of producing kiwis will increase

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

a person wants an endless supply of everything but cannot have it

The physical capital used by a woodworker to make furniture would include

saws and drills

Human capital includes

a taxi driver's knowledge of the city streets

Which of the following is NOT shown on a production possibilities curve?

all of the goods and services an economy has the ability to produce

A company that makes baseball caps is underutilizing its resources. What does this mean?

The company is producing fewer caps that it could be

What could cause a production possibilities curve to move down and to the left?

a nation loses land afater being defeated in a war

What can causse a production possibilities curve to move to the right?

a new invention lowers the cost of production

most desirable alternative given up when people choose one course of action over another

opportunity cost

limited quantities of resources to meet unlimited needs or desires


representation of alternitive ways to use an economy's resources

production possibilities graph

use of fewer resources than the economy's resources


actions or activities that one person performs for another


physical objects that can be exchanged


paid effort that peple devote to a task


use of resources in a way that maximizes output of goods and services


Which of the following is NOT characteristic of a centrally planned economy?

Each collective or factory sets its own goals

What is the struggle among various producers for the consumer's business called?


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

to provide for things that the marketplace does not address

Which of the following is NOT a key economic question?

How should be ensured that goods and services are paid for?

What does the process of specialization do for an economy?

It makes it more efficient

How could the Chinese economy be characterized?

mixed, but on the side of centrally planned

What is one of the most important advantages of a free market?

It enourages growth

What incentive motivates a manufacturer to sell a product?

making profits on sales

Which of the following was a free market philosopher?

Adam Smith

Which of the following is characteristic of a traditional economy?

Children tend to have the same jobs as their parents did

What is the product market?

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

What incentitive do manufacturers have to sell their products?

making profits on sales

In what kind of an economy does the government make all the decisions?

centrally planned

What is the purpose of competition?

to act as a regulating force in the marketplace

What is the function of an economic system?

to produce and distribute goods and services

Which of the following is a condition that most people would NOT expect the safety net of the government to provide for?

low income

How would the economy of Canada be likely to be characterized?

mixed, but on the side of free market

What is an important advantage of a free market?

It offers a wide variety of goods and services

Whos was the leader that introduced communism and central planning to the former Soviet Union?

Vladimir Lenin

What is the motivating force behind the free market?

self interest

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

A person who believed in the doctrine of laissez faire would disapprove of

government funding of education

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

unemployment compensation

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 whih kind of economy do they participate?

traditional economy

You are an entrepreneur with an innovative idea for a new business. In which kind of economy would you have the most opportunity to try to acheive success?

market economy

Why do markets exist?

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

Households pay firms for goods and services. Firms supply households with goods and services. The purchase and supply of goods takes place in the

product market

Which of the following goals is difficult to achieve in a pure free market system?

economic equity

A government prints and distributes posters to inspire workers to increase their productivity. In which kind of economy does this most likely take place?

centrally planned economy

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


Collectives in the Soviet Union were inefficient producers of agricultural products. Why? Farm workers had guaranteed incomes, so they had few incentives to produce more or better crops


Which of the following is NOT a weakness of centrally planned economies?

Most workers lack job security

The economy of China is in transition. What does this mean?

The economy is moving from cental planning toward a market based system

In which of the following lists of mixed economies does the market system dominate?

United States, United Kingdom, Singapore, Hong Kong

Which of the following is a private organization that attempts to influence public officials to act or vote in ways that will benefit the group's members?

interest group

What is the most effective way for consumers to make their desires known to businesses?

by the purchases they make

Why does the government use its powers to make sure that businesses disclose so much information to the public?

to make buyers more knowledgeable and safer

What is a positive externality?

an economic side effect that generates unexpected benefits

What does the Temporary Assistance for Needy Families program provide?

cash to the states to help run their welfare programs

What is the difference between a business cycle and the day to day ups and downs of the market?

A business cycle is a major prolonged flutuation rather than a day to day movement

What best describes the role of government in a free enterprise system?

Allow individuals to operate their businesses in ways they think will maximize their profits

What effect does new technology usually have on an economy?

It makes the economy stronger and more efficient

Which of the following is a critical rule for determining whether something is a public good?

The total benefits to society are greater than the total cost

Which of the following is NOT an example of a public good?

shopping malls

What protections does OSHA give to people in the United States?

regulations on workplace safety and information about hazards in the workplace

What is the term for the total value of all goods and services produced in a particular economy?

gross domestic product

What is one benefit provided by Social Security?

retirement income for the elderly

A person who consumes a good or service but does not pay for it is called which of the following?

a free rider

Assume that the poverty threshold for a single parent with one child $11,869 per year. Catrina is a single mother who works 40 hours per week. What hourly wage does she need to earn in order to rise above the poverty threshold?


Automakers are required to comply with public disclosure laws. What is one example of a requirement of these laws?

Car dealers must prominently display a sticker witht he fuel efficiency in the car window

An externality is

an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume

In 1996 a new federal welfare program called Teporary Assistance for Needy Families (TANF) began assissting poor families. Which of the following was NOT a provision of TANF?

direct cash payments to recipients

The U.S. Constitution guarantees certain rights that allow people to engage in business activities. Which of the following does the U.S. Constitution NOT guarantee?

the protection against monopolies and oligopolies

Why is legal equality important to the free enterprise system?

Guaranteeing all people the same legal rights will maximize the use of human capital

A large telephone comapany has hired lobbyists to try to persuade lawmakers to reduce governmental regulation over the telecommunications industry. Why might the company do this?

Some regulations are costly to implement and cut into profits

You read an article in a news magazine that explains how the economy expanded for several years then went into a period of contraction. What was the subject of this article?

the business cycle

To stabilize the economy policymakers try to achieve three main outcomes: high employment, steady growth, and

stable prices

Why does the government protect inventors and authors by offering them patents and copyrights?

to promote innovation

Which of the following is the best example of a public good?

highway system

You will still be able to get public broadcasting whether or not you contribute to their fundraising campaign. You decide not to contribute. This is an example of the

free rider problem

A new runway has opened up at the airport the flight path goes directly over your apartment. The noise of the airplanes is a

negative externality

Each payday some of your pay is withheld as payroll deductions for Social Security. What happens to the money that is withheld?

It is redistibuted as cash transfers to elderly and disabled people

Jeff Margaret qualify for Section 8 housing, a subsidized housing program from the federal government. What kind of benefit are they receiving?

in kind benefit

the study of the behavior and decision making of entire economies


an income level below that which is needed to support families or households

poverty threshold

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