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The key concept that serves as the basis for whats to study in macroeconomics:

d. scarcity

opportunity cost is best defined as:

c. the value of the best forgone alternative

when a state government chooses to build more roads, the required resources are no longer available for spending on public education, this dilemma illustrates the concept of:

d. opportunity costs

the observation that people compare the marginal benefits with the marginal costs n making such decisions as how to spend time, which products to buy, whether or not to work, and which goods to produce and sell, is most closely associated with

the economic perspective

Which expression is another way of saying "marginal cost"?

additional cost

Henry wants to buy a book. The economic perspective suggests that Henry will buy the book if

The marginal benefit of the book is greater than its marginal cost

The process of developing hypotheses, testing them against facts, and using the results to construct theories is called:

The scientific method

Another description for ceteris paribus is:

Other things equal

Economists have difficulty applying the scientific method because:

Controlled laboratory experiments are impossible or often infeasible

Macroeconomics focuses on:

total output and the general level of prices in the economy

A U.S. senator states: "The minimum wage should be raised to give people a decent living wage." This quote is an example of:

A normative economic statement

A schedule or curve that shows the various combinations of two products a consumer can purchase with a specific amount of money income is:

A budget line

Assume that a consumer purchases only two products and there is a decrease in the consumer's income. The prices of the two products stay the same. The change in income will result in a

Shift of the budget line inward to the left

The individual who brings together economic resources and assumes the risk of business ventures in a capitalist economy is called the:


The production possibilities curve represents:

The maximum combinations of products that can be produced with fixed resources and technology

The maximum combinations of products that can be produced with fixed resources and technology

Attainable, but the economy is inefficient

A point on the production possibilities curve is:

Attainable and resources are fully employed

A point outside the production possibilities curve is:

Unattainable because of limited resources

The production possibilities curve bows outward from the origin because

Opportunity costs increase as the production of a good increases

The production possibilities curve bows outward from the origin because:

Opportunity costs increase as the production of a good increases

If economic resources are perfectly interchangeable between the two products shown on a production possibilities graph:

The production possibilities curve would be a straight line

Economic growth may be represented by a:

Rightward shift of the production possibilities curve

A person observes that as consumer prices fall, economic growth increases. The person concludes that falling consumer prices leads to economic growth. This would be an example of:

Confusing correlation and causationWhich of the following statements is correct?

If you benefited from a decrease in the price of gasoline, the whole economy must have benefited. This statement is an example of

The fallacy of composition

The market system is often also known as:


One element of the command system is

Central planning

Which statement best describes the market system?

Entrepreneurs direct production activities, and market prices allocate goods and services

Which would not be characteristic of a capitalist economy?

Government ownership of most factors of production

Laissez-faire capitalism is characterized by:

Very limited government role in the economy

Which of the following statements is correct?

Freedom of choice and enterprise are essential elements of the market system

How do workers typically express self-interest?

By seeking jobs with the best combination of wages and benefits

Consumers express self-interest when they:

Seek the lowest price for a product

Competition is more likely to exist when

There is easy entry into and exit out of industries

Competition denotes a condition where:

The diffusion of economic power limits its potential abuse

All of the following statements describe a market economy except:

Government prescribes the desired prices for goods and services

A required element of specialization is:

Exchange and trade

Which is one of the five fundamental questions that need to be dealt with in any economic system

What goods and services will be produced?

he term consumer sovereignty means that

What is produced is ultimately determined by what consumers buy

In a market system, which production techniques will be used by firms to produce their output?

those that would allow firms to maximize their profits

With an increase in profits in a particular industry, we would expect

Firms to enter the industry

As new firms enter an expanding industry:

Economic profits tend to decline

Which of the following does not illustrate the idea of creative destruction?

A firm has to destroy some of the expired products in its inventory

The "invisible hand" concept used to describe the guiding function of prices was developed by:

Adam Smith

The major "success indicator" for business managers in command economies like the Soviet Union and China in the past was

The quantity of output

in the circular flow model, households:

Buy products and sell resources

The circular flow model:

Illustrates the interdependence of businesses and consumers

The simple circular flow model shows that workers and capital-owners offer their services to firms through the:

Resource markets

The money income of households consists of the sum of:

Wages plus rents plus interest plus profits

All markets involve the following elements, except:


n the labor markets,

Job applicants are the "sellers" while employers are the "buyers

Other things being equal, the law of demand suggests that as:

The price of 3-D TVs decreases, the quantity demanded will increase

Which of the following is a determinant of demand?


If product Y is an inferior good, a decrease in consumer incomes will:

Shift the demand curve for product Y to the right

Suppose that goods A and B are close substitutes. If the price of good A falls, then we would expect an:

ncrease in the quantity of A demanded and a decrease in the demand for B

If the price of ground beef increases, the demand for hamburger buns is predicted to:


A decrease in demand is shown graphically as a:

Shift of the demand curve to the left

If the price of a product decreases, we would expect:

Quantity supplied to decrease

Suppose that a more efficient way to produce a good is discovered, thus lowering production costs for the good. This will cause a(n)

Increase in supply, or a rightward shift of the supply curve

Which of the following will not cause the supply curve to shift?

A change in the price of the good

There is a shortage in a market for a product when:

Quantity demanded is greater than quantity supplied

The market system automatically corrects a surplus condition in a competitive market by:

Reducing the price of the commodity in question while increasing the quantity demanded

f an economy is being "productively efficient," then that means the economy is:

Using the least costly production techniques

allocative efficiency means that:

Resources are being devoted to the production of products most desired by society

A decrease in supply, holding demand constant, will cause:

Higher prices and a smaller quantity sold

Which of the following is a correct statement?

Price floors create surpluses

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