ECON FINAL

Which of the following would likely discourage specialization in an area?

a lack of good transportation

The development of skills in one aspect of a job is called

specialization.

Which of the following is true of self-sufficient societies?

Self-sufficient societies are less productive than specialized societies.

An athletic person picks fruit, and their sociable friend sells the fruit. This is an example of?

division of labor.

An economy can produce more with the same inputs of land, labor, and capital when people

specialize in a specific task or skill.

According to James Gwartney, Richard Stroup, and Dwight Lee in "Common Sense Economics," what is the foundation of trade?

mutual gain

When people specialize and trade, they

become economically interdependent.

Why did the United State's founding fathers set up trade barriers to limit interstate trade?

They wanted to promote self-sufficiency.

Susan can score seven goals, whereas Rob can score five. Susan has

an absolute advantage.

When does a person have a comparative advantage?

when they have a lower opportunity cost than others

How do you start calculating a person's comparative advantage?

You calculate their opportunity cost associated with an activity.

________ based on comparative advantage benefits both trading partners.

Specialization

Which of the following could contribute to a nation having a comparative advantage over another nation?

all of the above

Economist Michael Bade defined wealth as?

the total value of everything a person owns.

What is one reason trade makes people wealthier?

It lowers the cost of goods.

How does trade increase the value of goods?

Trade moves goods from people who value them less, to people who value them more.

Which of the following is true of the American economy and trade?

Most Americans experience benefits from global trade.

.How can global trade function as a disadvantage for some people?

It can take business away from local producers.

How does trade increase the variety and quantity of goods available?

Trade provides access to goods from around the globe.

Because trade expands the market for products, it can

lower the cost of goods by using mass production.

How do people and nations gain from specialization and trade

comparative advantage

The three fundamental economic questions are

what to produce, how, and for whom?

Why does every society face difficult choices in deciding what to produce?

Each society has limited resources but unlimited wants.

The ability to make our own economic decisions without interference from the government is called

economic freedom.

A society that values economic equity seeks to

give everyone a fair share of the economic pie.

Which economic goal is encroached upon when the government taxes your wages in order to provide unemployment benefits to help those out of work?

economic freedom

Most traditional economies today are found

among indigenous people who live much as their ancestors did.

Market economies

are highly efficient at producing goods and services that people want and are willing to pay for.

What does the circular flow model illustrate?

It shows how money, goods, and resources move through a market economy.

The two kinds of markets in the circular flow model are

the product market and the factor market.

When Adam Smith wrote about "the invisible hand," he was referring to the power of

markets to provide goods and services at prices people will pay.

Which economic goals are emphasized in a modern command economy?

economic security and equity

Which economic goals are emphasized in a market economy?

economic efficiency and freedom

What is the role of government in a mixed economy?

all of the above

Which statement about a mixed economy is true?

The government pays household and firms for their labor and products.

One of the most free economies in the world is

Australia.

Individuals own the factors of production and make decisions about how to use those factors in

a free enterprise system.

Why is competition important to a free enterprise system?

It results in more choices for consumers.

In a laissez-faire economy,

producers and consumers are relatively free of government intervention.

Intellectual property laws

encourage innovation by guaranteeing that inventors and artists can profit from their creations.

The most significant driving force of the free enterprise system is

the profit motive.

Americans dearly value their economic freedom, so much that we even describe our economy as a

free enterprise system.

What does Adam Smith argue in "The Wealth of Nations"?

Competition is crucial for a healthy economy.

Economics is often defined as the study of how people choose to

use their limited resources to satisfy their unlimited wants.

A riddle or puzzle that can be explained through an economic analysis is called

an economic enigma.

When an economist uses objective analysis to find out how the economy actually works, this is

positive economics.

When an economist uses objective analysis to find out how things ought to be done, this is

normative economics.

Which of the following is true of the scarcity-forces-tradeoffs principle?

all of the above

You consider the costs and benefits between seeing your friends and doing homework. This is an example of

a cost-benefit analysis.

What is a marginal benefit?

what you gain by adding one more unit

Which of the following is an example of a positive incentive?

honor societies

You pay a hairdresser $40 to get a nice haircut. This demonstrates the

trade-makes-people-better-off principle.

Which of the following is an example of a market?

all of the above

A market that operates with limited government interference results in

an efficient market that serves everybody's interests.

The metaphor of the invisible hand explains how

an individual's pursuit for self-interest promotes society's well-being.

A school cuts spending on scholarships to open up more classes. As a result

less students are motivated to get good grades. This is an example of, the law of unintended consequences.

What is the final step of the scientific method?

evaluating the hypothesis

A \________ is a visual representation of the relationship between two given sets of data.

graph

Why can't graphs show a complete picture of how two sets of information are related?

graphs are simplifications

Part of the rational-behavior model theory is that,people act upon their own interest

without taking into account the well-being of others.

What must economists do when they construct models?

make assumptions

The term "Ceteris Paribus," when used in economic models, refers to the assumption that

all factors except for those considered stay the same.

The famous economist who came up with the invisible hand theory is

Adam Smith

What happens when the price of a good adjusts to bring the quantity demanded and the quantity supplied into balance?

market equilibrium

At the farmers market, what happens when watermelons reach their equilibrium price?

Customers will buy all of the melons that farmers are selling.

Markets are governed by

the law of supply and demand.

What is likely to happen if a farmer sells her entire supply of watermelons in the first hour the farmers market is open?

She will raise her prices at the next farmers market.

What leads to excess demand?

More people want a good or service than producers can supply.

How do consumers experience excess demand?

as a shortage

The owners of a juice bar produce a smoothie that is wildly popular, and they cannot keep up with demand. What can they do to solve this problem?

all of the above

Suppose the owners of a bakery have more cupcakes on hand than customers want to buy. What might have caused this excess supply?

The bakery raised the price higher than people were willing to pay.

Which of the following is an example of a supply shifter?

an increase in the cost of inputs

Suppose medical research were to identify blueberries as a powerful "brain food." How would that affect the demand curve for blueberry smoothie?

It would shift to the right.

A drought reduces the blueberry harvest, but the demand for blueberries is unchanged. How would that affect the equilibrium price and quantity?

The price increases as the supply decreases.

Which statement about demand and supply is true?

The impact of shifts in demand and supply is not always immediately clear.

Real estate in Manhattan is very expensive. What information do real estate prices convey to consumers?

There is a shortage of real estate in Manhattan.

Suppose home prices in a city are increasing. What is a logical result of this price increase?

Construction firms begin building more homes.

In 2005, Hurricanes Katrina and Rita hit the Gulf Coast and disrupted the supply of oil. What was the impact on gas prices?

Gas prices fluctuated while the supply of oil was unpredictable.

Which statement is true?

Prices allocate scarce resources efficiently.

A price floor is

a government-set minimum price consumers are required to pay for a good or a service.

Rent control is an example of

a price ceiling.

One example of when the government might impose rationing is

when essential, but high-demand, goods are in short supply.

Why is it often difficult for the government to end price controls?

all of the above

What are the owners of this shop trying to achieve with their prices?

market equilibrium

Goods are

physical objects produced for sale.

Our wants are

unlimited.

What causes a shortage?

a temporary increase in demand for a particular good or service

Why do economists say that scarcity is everywhere?

The resources needed to produce goods and services are insufficient to meet the demand for them.

What do economists mean when they use the word "land?"

natural resources used to produce goods and services

What is one way that a business can raise its productivity?

get more outputs from the same inputs

Which statement about a country's human capital is true?

A country with high human capital is a wealthier nation.

To an economist, the word capital includes

the tools, machines, and buildings used in the production of other goods and services.

What do we do when we maximize the utility of our decisions?

We make the decisions that we expect will make us better off.

In the classic guns-versus-butter tradeoff, what happens when a society chooses to produce guns (military goods) instead of butter (civilian goods)?

The society maximizes its security, but lowers its standard of living.

The opportunity cost of a decision is

the value of the best thing you gave up to get what you want.

Which scenario would be an example of the law of diminishing marginal utility?

eating the last slice of an extra-large pizza with all the toppings

An economic model, in the form of a line graph, that shows how an economy might use its resources to produce two goods is called

a production possibilities frontier.

What would it mean to an economy if a PPF were curved instead of straight?

The tradeoffs in that economy would not be the same at every point on the curve.

What does every point outside a PPF represent?

an unattainable production possibility

When a country's economy grows, what happens to a PPF?

It shifts to the right.