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Macroeconomics Final Review Quiz 1-3

Terms in this set (55)

Economy
English word from Greek word meaning "one who manages a household"
Resources are
scarce for households and economies
In considering how to allocate resources, consider
each members abilities, efforts, and desires
economics is the the study of
how society manages its scarce resources
Which of the following is a decision that economists study?
how much money people save, what they buy and how much they work
Economists use the word equality to describe a situation in which
each member of society has the same income
Efficiency means that
a. society is getting the maximum benefits from its scarce resources.
Which of the following is true?
Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
When the government redistributes income from the wealthy to the poor,
a. people work less and produce fewer goods and services.
A rational decisionmaker takes an action if and only if
the marginal benefit of the action exceeds the marginal cost of the action.
Rational people make decisions at the margin by
comparing marginal costs and marginal benefits.
Market economies are distinguished from other types of economies largely on the basis of
the ways in which scarce resources are allocated.
The term "invisible hand" was coined by
Adam Smith.
The "invisible hand" directs economic activity through
prices
The invisible hand refers to
how the decisions of households and firms lead to desirable market outcomes.
In a market economy, economic activity is guided by
. self-interest and prices.
Prices usually reflect
both the value of a good to society and the cost to society of making the good.
Prices direct economic activity in a market economy by
influencing the actions of buyers and sellers.
The goal of an economist who formulates new theories is to
contribute to an understanding of how the world works
Economists face an obstacle that many other scientists do not face. What is that obstacle
It is often difficult and sometimes impossible to perform experiments in economics
Because it is difficult for economists to use experiments to generate data, they generally must
use whatever data the world gives them
The most common data for testing economic theories come from
historical episodes of economic change
Economists make assumptions in order to
focus their thinking on the essence of the problem at hand.
A model can be accurately described as a
simplification of reality
The circular-flow diagram is a
visual model of the economy.
Which two groups of decision makers are included in the simple circular-flow diagram?
households and firms
Factors of production are
inputs into the production process.
In economics, capital refers to
buildings and machines used in the production process
The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and
the available production technology
The production possibilities frontier is a graph that shows the various combinations of output that an economy
can produce
Any point on a country's production possibilities frontier represents a combination of two goods that an economy
can produce using all available resources and technology
Where can an economy not produce?
outside its production possibilities frontier
Production is efficient if the economy is producing at a point
on the production possibilities frontier
When an economy is operating inside its production possibilities frontier, we know that
there are unused resources or inefficiencies in the economy
The production possibilities frontier provides an illustration of the principle that
people face trade-offs
Unemployment would cause an economy to
produce inside its production possibilities frontier
People who provide you with goods and services
do so because they get something in return.
When an economist points out that you and millions of other people are interdependent, he or she is referring to the fact that we all
rely upon one another for the goods and services we consume.
A production possibilities frontier is bowed outward when
the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.
The most obvious benefit of specialization and trade is that they allow us to
consume more goods than we otherwise would be able to consume
For a self-sufficient producer, the production possibilities frontier
is the same as the consumption possibilities frontier
opportunity cost
What must be given up to obtain an item
Absolute advantage is found by comparing different producers'
input requirements per unit of output.
The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good
has an absolute advantage in the production of that good
Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, while Sandy can make 6 tables or 18 chairs. Given this, we know that
Mike has an absolute advantage in chairs
If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then
Iowa has a comparative advantage in the production of corn
When describing the opportunity cost of two producers, economists use the term
comparative advantage
For two individuals who engage in the same two productive activities, it is impossible for one of the two individuals to
have a comparative advantage in both activities.
Which of the following statements about comparative advantage is not true?
Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources.
Specialization and trade are closely linked to
comparative advantage
When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy
rises
Total output in an economy increases when each person specializes because
each person spends more time producing that product in which he or she has a comparative advantage.
The gains from trade are
a result of more efficient resource allocation than would be observed in the absence of trade
Trade can make everybody better off because it
allows people to specialize according to comparative advantage
If labor in Mexico is less productive than labor in the United States in all areas of production
then both Mexico and the United States still can benefit from trade.
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