econ midterm review TCI

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.

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

1. The three fundamental economic questions are

what to produce, how, and for whom?

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

Each society has limited resources but unlimited wants.

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

economic freedom.

4. A society that values economic equity seeks to

give everyone a fair share of the economic pie.

5. 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

6. Most traditional economies today are found among

indigenous people who live much as their ancestors did.

7. Market economies

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

8. What does the circular flow model illustrate?

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

9. The two kinds of markets in the circular flow model are

the product market and the factor market.

10. 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.

11. Which economic goals are emphasized in a command economy?

economic security and equity

12. Which economic goals are emphasized in a market economy?

economic efficiency and freedom

13. 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.

14. Which statement about a mixed economy is true?

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

15. One of the most free economies in the world is

Australia.

16. 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.

18. In a laissez-faire economy

producers and consumers are relatively free of government intervention.

19. Intellectual property laws

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

20. 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.