economics deals primarily with the concept of
scarcity
the phenomenon of scarcity stems from the fact that
resources are limited
economics is the study of
how society manages its scarce resources
in most societies, resources are allocated by
the combined actions of millions of households and firms
the adage, “there is no such thing as free lunch,” means
people face trade offs
guns and butter are used to represent the classic societal trade off between spending on
national defense and consumer goods
economists use the words equality to describe a situation in which
each member of society has the same income
the property of society getting the most it can from its scarce resources is called
efficiency
when the government attempts to improve equality in an economy, the result is often
a reduction in efficiency
the opportunity cost of an item is
what you give up to get that item
when computing the cost of attending a basketball game you should include
the price you pay for your ticket and the value of your time
a rational decision maker
takes an action only if the marginal benefit of that action exceeds the marginal cost of that item
a marginal change is a
small, increment adjustment
suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night, the hotel manager should
rent the room because the marginal benefit exceeds the marginal cost
a tax on gasoline encourages people to drive smaller, more fuel-efficient cars. which principle of economics does this illustrate?
people respond to incentives
trade between the US and Guatemala
benefits both countries
Trading with other countries is beneficial
because it allows specialization, which increases total output
one advantage market economies have over centrally-planned economics is that market economies
are more efficient
in a market economy, economic activity is guided by
self interest and prices
prices direct economic activity in a market economy by
influencing the actions of buyers and sellers
public policies
may be able to improve either economic efficiency or equality
the term used to describe a situation in which markets do not allocate resources efficiently is
market failure
causes of market failure include
externalities and market power
the term “productivity”
refers to the quantity of goods and services produced form each unit of labor input
most important factor that determines differences in living standards across countries?
productivity
With respect to how economists study the economy, which of the following statements is most accurate?
nomists devise theories, collect data, and analyze the data to test the theories.
Which of the following statements is correct?
economists are usually not able to conduct experiments, so they must rely on natural experiments offered by history.
For an economist, the idea of making assumptions is regarded generally as a
good idea, since doing so helps to simplify the complex world and make it easier to understand.
economic models
incorporate simplifying assumptions that often contradict reality, but also help economists better understand reality.
factors of production are
uts into the production process.
in economics, capital refers to
b
which markets are represented in the simple circular-flow diagram
c
in the markets for goods and services in the circular-flow diagram
c
the two loops in the circular-flow diagram represent
a
Any point on a country’s production possibilities frontier represents a combination of two goods that an economy
d
Which of the following is a correct statement about production possibilities frontiers?
b
An economic outcome is said to be efficient if the economy is
c
An economy’s production of two goods is efficient if
c
When an economy is operating inside its production possibilities frontier, we know that
c
The production possibilities frontier provides an illustration of the principle that
a
The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the
c
When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good
a
production possibilities frontiers are usually bowed outward. This is because
a
A production possibilities frontier shifts outward when
d
Normative statements are
a
Which of the following is an example of a positive, as opposed to normative, statement?
a
Which of the following is an example of a normative – as opposed to a positive – statement?
a
Which of the following is one of the basic reasons why economists often appear to give conflicting advice to policymakers?
c
