Studied by 10 peopleWhat 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.
What does macroeconomics examine?
the workings of an economy as a whole
When an economist uses objective analysis to find out how the economy actually works, this is
positive 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
Goods are
physical objects produced for sale
Our wants are
unlimited
What cause 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
what is true about a country's human capital?
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
What 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
What are the factors of production
land, labor, capital
What is one modern example of capital replacing labor
a robot in an automobile assembly plant
During World War II, the U.S. rationed certain consumer goods to support the war effort. Economists would describe this scenario as
the guns-versus-butter tradeoff.
What is the opportunity cost of going to college rather than starting work immediately after high school
the lost wages and work experience from the job you would have taken
How can we measure what we gain and lose when making choices?
production possibilities frontier
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 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?
They outlaw child labor. Some governments limit the amount of pollution that industries can discharge. In the United States, the government regulates the manufacture of cosmetics, foods, and drugs because consumers want to know that products on the market are safe.
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.
17.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.
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, where as 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?
a warmer climate, better education, lots of forests
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.
What is market demand?
B. the sum of the individual quantities demanded in a market
What does this market demand curve show?
C. the quantity of tacos that customers would buy at different prices
If tacos cost $0.50, about how many more tacos would customers buy than if they cost $3.00?
D. 30
What does the market demand curve show in graph form?
B. the law of demand
What happens to the market demand curve when there is an increase in market demand?
D. It shifts to the right.
Follow the dashed lines from Points A and C to the x-axis. What change in demand do you see between D1 and D3?
C. an increase in demand of 10 tacos
What can cause a change in demand?
all of the above
When CDs and MP3 players came along, demand for cassette players decreased. Demand for which complementary good also decreased at the same time?
A. cassette tapes
What is market supply?
D. the sum of all the individual quantities supplied in a market
What does this market supply curve show?
A. the relationship between the price and quantity of tacos producers are willing and able to supply
What does Point A represent on this market supply curve?
B. At a price of $1.50, producers are willing and able to supply 750 tacos every week.
What does the market supply curve show?
D. the law of supply
What happens to the market supply curve when there is a decrease in market supply?
D. It shifts to the left.
Follow the dashed lines from Point A to Point C on the x-axis. What change in supply do you see between S1 and S3?
B. an increase in supply by 200 tacos
What can cause a change in supply?
all of the above --> A. changes in the number of producers B. changes in technology C. changes in government policy
A manufacturer of a hot new game system cannot supply enough to meet the demand. What will happen to the price of the available game systems?
C. The price will increase.
What does it mean if an economist says demand for a product is elastic?
C. Demand changes in response to a change in price.
What does it mean if an economist says demand for a product is inelastic?
C. Demand responds slightly or not at all to a change in price.
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