econ test 1

What are private property​ rights? Private property rights​ are:

the rights individuals and firms have to the exclusive use of​ tangible, physical property and intellectual property.

What role do they play in the working of a market​ system? Private property​ rights

A
encourage a significant number of people to be willing to risk funds by investing them in business.

B.

encourage firms to spend money on research and development.

Why are independent courts important for a​ well-functioning economy? Independence is necessary for​ courts:

A.

to make their decisions free of intimidation by criminal gangs.

B.

to make their decisions based on the law.

C.

to make their decisions free of influence from people with powerful political connections.

D.

to make their decisions free of influence from other parts of the government.

What does increasing marginal opportunity costs​ mean?

Increasing the production of a good requires larger and larger decreases in the production of another good.

What are the implications of this idea for the shape of the production possibilities​ frontier?

The production possibilities frontier will be bowed outward.

The primary difference between absolute and comparative advantage is

absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.

normative analysis

Normative = opinion-based, prescriptive

Positive analysis

Positive = factual, descriptive

What is absolute​ advantage?

The ability to produce more of a good or service than competitors using the same amount of resources.

What is comparative​ advantage?

The ability to produce a good or service at a lower opportunity cost than other producers.

Is it possible for a country to have a comparative advantage in producing a good without also having an absolute​ advantage? A country without an absolute advantage in producing a good

will have a comparative advantage if it has a lower opportunity cost of producing that good.

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals.

What is the basis for​ trade?

Comparative advantage.

How can a country gain from specialization and​ trade?

A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

marginal benefit equals marginal cost.

When does productive efficiency​ occur?

Productive efficiency occurs when a good or service is produced at the lowest possible cost.

When does allocative efficiency​ occur?

Allocative efficiency occurs when production is in accordance with consumer preferences.

​Suppose, in an effort to prevent the population from​ declining, Italy begins offering new mothers extended periods of paid family leave from work​ and, consequently, the birthrate per woman increases.

if​ so, then this could best be characterized as an example of people responding to

.

economic incentives.

What is the​ circular-flow diagram and what does it​ illustrate?  

The​ circular-flow diagram shows how households and firms are linked through product and factor markets.

Every society faces​ trade-offs because we live in a world of scarcity. Suppose a​ student-athlete has the opportunity to earn 400,000 next year playing for a minor league baseball​ team, $500,000 next year playing for a European professional football​ team, or​ $0 returning to college for another year.

The opportunity cost of the​ student-athlete returning to college next year is $500,000

What goods and services will be​ produced, how the goods and services will be​ produced, and who will receive the goods and services are​ determined

in centrally planned economies by the government.

in market economies by the decisions of households and firms interacting in markets.

Which of the following statements about economics as a social science is​ correct?

Economics studies the actions of individuals.

Which of the following best describes​ scarcity?

Unlimited wants exceed the limited resources available.

Your answer is correct.

Scarcity is central to the study of economics because it implies that

every choice involves an opportunity cost.

Which of the following events would create economic​ growth, that​ is, shift the production possibilities frontier​ outward?

An increase in the available labor.

An increase in technology that affects the production of both goods.

An increase in the available natural resources.

Which of the following is not a step that economists use in developing a useful economic​ model?

Make a value judgement about the merits of the hypothesis.