CHAPTER 1 | Economics: Foundations and Models – Flashcards
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Economics is the study of all of the following except
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how the prices of goods and services are determined
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Which of the following statements best defines scarcity?
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Scarcity is a situation in wh ich unlimited wants exceed the limited resources available to fulfill those wants.
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When you think of an arrangement or institution that brings buyers and sellers of a good or service together, what are you thinking of?
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A market
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In economics, how do rational people behave?
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They decide on an action only if its benefits outweigh its costs.
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Fill in the blank. In economics, optimal decisions are made _____________.
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at the margin
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Which of the following is not among the fundamental economic questions that every society must solve?
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What goods and services will be exchanged?
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What types of economies require that answers be given to the following questions: what goods and services will be produced, how will the goods and services be produced, and who will receive the goods and services produced?
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market economies, centrally planned economies, mixed economies
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In what type of economy does the government decide how economic resources will be allocated?
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a centrally planned economy
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Which of the following is the best classification for the economies of the United States, Canada, Japan, and Western Europe?
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mixed economies
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Which of the following terms best refers to a fair distribution of economic benefits?
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equity
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Which of the following is achieved when a good or service is produced up to the point where the marginal benefit to consumers is equal to the marginal cost of producing it?
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allocative efficiency
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Which of the following terms summarizes the situation in which a buyer and a seller exchange a product in a market and, as a result, both are made better off by the transaction?
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voluntary exchange
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What does an economy achieve by producing a good or service at the least possible cost?
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productive efficiency
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Which of the following best describes the characteristics of models used in economics?
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Models are simplifications of reality that include only essential elements and exclude less relevant details.
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Which of the following is not an essential component of an economic model?
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normative statements
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What is the purpose of an economic hypothesis?
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to establish a causal relationship
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What type of economic analysis is concerned with the way things ought to be?
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normative analysis
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The statement "A minimum wage actually reduces employment" would be considered what type of statement?
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a positive statement
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Which of the following is an example of a positive question?
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If the college increased tuition, would class sizes decline?
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Which of the following questions can be answered using normative economic reasoning?
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Should a college cut tuition to stimulate enrollments?
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Which of the following involves an estimation of the benefits and costs of a particular action?
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positive analysis
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What type of assessment is one in which a person's values and political views form part of that assessment?
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a normative assessment
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Fill in the blank: ____________is the study of how households and businesses make choices, how they interact in markets, and how the government influences their choices.
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Microeconomics
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Which of the following covers the study of topics such as inflation and unemployment?
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macroeconomics
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What is the name given to the development of a new good or a new process for making a good?
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an invention
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A firm's processes to produce goods and services are called
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technology
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The stock of computers, factory buildings, and machine tools used to produce goods better are known as
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physical capital
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Human capital is
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the accumulated training and skills that workers possess
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Fill in the blanks. The slope of a straight line equals the change in value on the ____________ axis____________ by the change in the value on the other axis between any two points on the line.
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vertical; divided
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Why do economists distinguish between financial capital and physical capital?
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Economists distinguish financial capital and physical capital because only physical capital (for example, machinery, tools, and buildings) is a productive resource. Financial capital includes stocks, bonds, and holdings of money. Financial capital is not part of a country's capital stock, because financial capital does not produce output.
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Explain the difference between productive efficiency and allocative efficiency.
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Productive efficiency is the situation in which a good or service is produced at the lowest possible cost. Allocative efficiency is a state of the economy in which production reflects consumer preferences: every good or service is produced to the point at which the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
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TF: Stating a hypothesis in an economic model is an example of normative analysis
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F
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TF: Only poor people face problems related to scarcity
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T
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TF: Economists assume that human beings respond only to monetary incentives.
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F
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TF: In a centrally planned economy, the goods and services produced are always distributed equally to all citizens
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F
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TF:Equity is achieved when economic benefits are equally distributed.
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F
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TF: A mixed economy is an economy in which the three fundamental questions (What? How? Who?) are answered by a mixture of consumers and producers.
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F
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TF: Only centrally planned economies face trade-offs when producing goods and services
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F
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TF: People are rational when they only take actions that benefit society as a whole
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F
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TF: Government intervention in the U.S. economy increased dramatically as a result of the Great Depression.
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T
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TF: Economists use normative analysis to show that the minimum-wage law leads to higher unemployment.
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F
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TF: Microeconomics is the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
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T
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TF: The slope of a straight line is the same at any point.
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T
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TF: To measure the slope of a nonlinear curve at a particular point, one must draw a straight line from the origin to the point. The slope of this line is equal to the slope of the curve at that point
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F
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TF: All societies face the economic problem of having a limited amount of economic resources.
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T
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TF: Economic models can help analyze simple real-world economic situations but are of little value in analyzing complicated economic situations.
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F
