Exam 1 Review Economics 2300 – Flashcards
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Economics is best defined as the
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study of how people make choices to satisfy their wants.
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According to economists, economic self-interest:
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is a reality that underlies economic behavior.
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In economics, ________ are limited but ________ are unlimited.
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resources; wants
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A person has a comparative advantage in an activity whenever she
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can perform the activity at a lower opportunity cost than another person can.
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As a consequence of the condition of scarcity:
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Individuals have to make choices from among alternatives
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A recurring theme in economics is:
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People have unlimited economic wants, but limited resources
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Opportunity cost is best defined as:
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The value of the best foregone alternative
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What is a major opportunity cost of going to college on a full-time basis?
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The forgone income that could be earned working a full-time job
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The concept of "rational behavior" suggests that:
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People make different choices because their circumstances and information differ.
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Which of the following is associated with macroeconomics?
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An empiracle investigation of the general price level and employment rates since 1990
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The market system is an economic system that:
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Gives private individuals and institutions the right to own resources used in production
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Which statement best describes a command economy?
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The production and allocation of goods and services is determined primarily through government
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Competition is more likely to exist when:
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There is free entry into and exit out of industries
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Which is a determinant of demand?
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Income
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The market system communicates changes in supply and demand and elicits appropriate responses from businesses and resource suppliers. This is known as the:
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Rationing function of prices
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Which is a determinant of supply?
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Technology
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Other things being equal, the law of demand implies that as:
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The price of CDs increases, the quantity of CDs demanded will decrease
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The demand curve is a representation of the relationship between the quantity of a product demanded and:
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Price
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Refer to the above table. At a price of $6, the market demand for wheat is:
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17
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When the price of one fruit increases, consumers buy more of another fruit. This situation is an illustration of:
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The substitution effect
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Refer to the above graph, which shows the market for chicken where D1 and D2 represent different demand curves. A change from E1 to E2 is most likely to result from:
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An increase in the price of beef products
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Refer to the above graph, which shows the market for bicycles. S1 and D1are the original supply and demand curves. D2 and D3 and S2 and S3 are possible new demand and supply curves. Starting from the initial equilibrium point (#1), what point on the graph is most likely to result from an increase in wages of bicycle workers, and a significant increase in the price of gasoline?
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4
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A point outside a production possibilities curve indicates
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an output combination that is unobtainable with the current resource and technology levels
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Refer to the above graph. The total opportunity cost of seven units of civilian goods is:
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2 units of defense goods
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Health insurance often pays 80 percent of health care cost. This situation will encourage the rational consumer to:
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Use more medical services than they would if they had to pay the full price
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An economic activity in which benefits or costs affect third parties is called
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an externality.
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External costs can be defined as
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the cost associated with private production, but partially borne by society.
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The price system will allocate resources efficiently except when
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market failures exist.
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One way that the government encourages the production of a good with positive externalities is to offer
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a subsidy.
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The U.S. antitrust laws
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Promote competition
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In the graph above, under a legal price ceiling of X, the price and quantity traded would be:
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Price X and quantity B
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If a price floor above the equilibrium price is imposed by government in a market:
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The quantify supplied with exceed the quantity demanded
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The legal system provided by the government is necessary for the smooth working of markets because
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it defines and protects property rights.
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The U.S. antitrust laws
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Promote competition
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Public goods
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can be consumed by more than one person without degradation of the value of the good.
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Government spending as a percent of national income
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peaked during World War II.
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A transfer payment is a payment
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for which no services or goods are rendered.
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Examples of transfer payments are
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Social security checks and unemployment insurance payments
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According to your text, which of the following represents the largest component of federal spending?
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Social Security
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What kind of externality does public education produce, if any?
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positive externality
