ECON EXAM 1 (1-3)

When economists say goods are scarce, they mean

the desire for goods and services exceeds our ability to produce them with the limited resources available.

To say that people make marginal decisions means that

they weigh the additional costs and additional benefits of various activities before they make a decision

The Secretary of Labor states that wage rates in the country have risen by 2 percent this past year. The head of a local labor union states that wage gains should have been higher. The Secretary's statement is a(n) ____ economic statement, and the labor head's statement is a(n) ____ economic statement.

positive; normative

Which of the following most clearly distinguishes between positive and normative economics?

Positive economics is the study of the facts; normative economics is concerned with what ought to be.

The basic difference between macroeconomics and microeconomics is that

microeconomics is concerned with individual markets and the behavior of people and firms, while macroeconomics is concerned with aggregate markets and the entire economy.

is the fundamental concept of economics that indicates that there is less of a good freely available from nature than people would like.

Scarcity

refers to the highest valued alternative that must be sacrificed as a result of choosing an option.

opportunity cost

The branch of economics that focuses on how human behavior affects outcomes in highly aggregated markets is known as

macroeconomics

Criteria for rationing goods and resources must be established because of

scarcity imposed by nature.

Capital is a term economists use to refer to

Man-made resources used to produce other goods and services.

The three major categories of resources are

human resources, physical resources, and natural resources.

Economics is primarily the study of

the choices we must make among alternatives because of scarcity.

The opportunity cost of an action is

the value of the best opportunity that must be sacrificed in order to take the action.

The opportunity cost of going to college is

the value of the best opportunity a student gives up to attend college.

The economizing problem is essentially one of deciding how to make the best use of

limited resources to satisfy virtually unlimited wants.

When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare

the additional benefits of the second car with the additional cost of the second car.
the benefits expected from two cars with the cost of both.

Opportunity cost is defined

as the value of the best alternative not chosen

Which of the following will most likely cause an outward shift in the production possibilities curve?

an increase from 40 to 50 hours in the average number of hours worked per week

production possibilities curve

A curve that outlines all possible combinations of total output that could be produced, assuming (1) a fixed amount of productive resources, (2) a given amount of technical knowledge, and (3) full and efficient use of those resources is known as the ___________________.

Socialism

a system of economic organization in which (1) the ownership and control of the basic means of production rest with the state and (2) resource allocation is determined by centralized planning rather than market forces.

Capitalism

An economic system in which productive resources are owned privately and goods and resources are allocated through market prices is

The opportunity cost of building a park in your hometown would be the

highest valued bundle of other goods and services that must be forgone because of the park construction.

Isabella decides to buy a dress that Olivia has for sale; they agree on a price of $20. Which of the following best describes who gains and who loses from the transaction?

both parties gain

Noah values his car at $10,000, and Emily values it at $14,000. If Emily buys it from Noah for $11,000, which of the following is true?

Noah gains $1,000 of value, and Emily gains $3,000 of value.

When private ownership of a resource is clearly defined and enforced, the private owner

has a strong incentive to use it wisely

A production possibilities curve indicates that when resources are being used efficiently,

you can only produce more of one good only if you produce less of another good.

Which of the following is true of a production possibilities curve?

It reveals the maximum amount of any two goods that can be produced from a fixed quantity of resources.

A point inside the production possibilities curve represents a combination of goods that is

unattainable

In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?

shifted inward

Assume the demand curve for shampoo is downward sloping. If the price of shampoo falls from $1.50 to $1.25 per dozen,

a larger quantity of shampoo will be demanded.

When economists say the supply of a product has decreased, they mean that

supply curve shifted left

What impact would a severe drought that destroys the wheat crop in several areas of the United States have on the market for wheat?

wheat supply will fall

If a surplus exists in a market we know that the actual price is

above equilibrium price and quantity supplied is greater than quantity demanded.

If equilibrium is present in a market,

quantity demanded equals quantity supplied

Which of the following most accurately describes the invisible hand concept?

In a market setting, when individuals pursue their own interests, they simultaneously tend to promote the public interest.

Each point on the demand curve indicates

the quantity demanded at that price.

Market

an abstract concept encompassing the forces of supply and demand and the interaction of buyers and sellers with the potential for exchange to occur.

law of demand

The principle that states there is an inverse relationship between the price of a good and the quantity of it buyers are willing to purchase is known as the

A demand curve for flowers would show the

number of flowers that will be purchased at various prices.

Law of Demand

consumers buy more of a good when its price decreases and less when its price increases

According to the law of supply, as the price of a good increases,

sellers will produce more of the good.