Principles of Microeconomics – Chapter 1 & 2 – Flashcards

In economics, choices must be made because we live in a world of: A) unemployment B) scarcity C) greed D) unlimited resources

The basic economic problem of ________ has always existed and will continue to exist. A) scarcity B) efficiency C) inflation D) recession

An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue. A) market B) trade-off C) variable D) model

In economics, the term ________ refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade. A) collective B) cooperative C) market D) trade-off

Economists assume that individuals A) behave in unpredictable ways. B) will never take actions to help others. C) prefer to live in a society that values fairness above all else. D) are rational and respond to incentives.

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that A) people with health insurance are less likely to be overweight than people without health insurance. B) people with health insurance are more likely to be overweight than people without health insurance. C) people with health insurance are equally likely to be overweight as people without health insurance. D) there is no correlation between having health insurance and being overweight.

In economics, the term ________ means "additional" or "extra." A) allocative B) marginal C) equity D) optimal

Economists reason that the optimal decision is to continue any activity up to the point where the A) marginal benefit is zero. B) marginal benefit is greater than the marginal cost. C) marginal cost is zero. D) marginal benefit equals the marginal cost.

The ________ the sale of an additional unit of a product is a marginal benefit to the firm. A) revenue received from B) extra cost of C) total value of D) sales tax on

The three fundamental questions that any economy must address are: A) What will be the prices of goods and services; how will these goods and services be produced; and who will receive them? B) What goods and services to produce; how will these goods and services be produced; and who receives them? C) Who gets jobs; what wages do workers earn; and who owns what property? D) How much will be saved; what will be produced; and how can these goods and services be fairly distributed?

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of A) optimization. B) efficiency. C) trade-off. D) equity.

The highest valued alternative that must be given up to engage in an activity is the definition of A) economic equity. B) marginal benefit. C) opportunity cost. D) marginal cost.

The production possibilities frontier shows the ________ combinations of two products that can be produced in a particular time period with available resources. A) minimum attainable B) maximum attainable C) only D) equitable

How are the fundamental economic decisions determined in North Korea? A) Individuals, firms, and the government interact in a market to make these economic decisions. B) These decisions are made by the country's elders who have had much experience in answering these questions. C) The government decides because North Korea is a centrally planned economy. D) The United Nations decides because North Korea is a developing economy.

The slope of a production possibilities frontier A) has no economic relevance or meaning. B) is always constant. C) is always varying. D) measures the opportunity cost of producing one more unit of a good.

An outward shift of a nation's production possibilities frontier represents A) economic growth. B) rising prices of the two goods on the production possibilities frontier model. C) an impossible situation. D) a situation in which a country produces more of one good and less of another.

Which of the following would shift a nation's production possibilities frontier outward? A) discovering a cheaper way to convert sunshine into electricity B) an increase in demand for the nation's products C) a decrease in the unemployment rate D) a law requiring workers to retire at age 50

Which of the following is a factor of production? A) an oven in a bakery B) a share of General Motors' stock C) a credit card D) a $500 Treasury bond

The natural resources used in production are made available in the A) goods and services market. B) product market. C) government market. D) factor market.

The ________ demonstrates the roles played by households and firms in the market system. A) production possibilities frontier B) circular flow model C) theory of comparative advantage D) business cycle

Households ________ final goods and services in the ________ market. A) purchase; factor B) purchase; product C) sell; factor D) sell; product

Adam Smith's invisible hand refers to A) the government's unobtrusive role in ensuring that the economy functions efficiently. B) property ownership laws and the rule of the court system. C) the process by which individuals acting in their own self-interest bring about a market outcome that benefits society as a whole. D) the laws of nature that influence economics decisions.

When you purchase a new pair of jeans you do so in the A) factor market. B) input market. C) product market. D) resource market.

Refer to the table above. Does either China or South Korea have an absolute advantage and if so, in what product? A) South Korea only has an absolute advantage in wheat. B) China only has an absolute advantage in wheat. C) South Korea has an absolute advantage in both products. D) China only has an absolute advantage in digital cameras.

Refer to the table above. China has a comparative advantage in the production of A) wheat. B) digital cameras. C) both products. D) neither product.

Refer to the table above. If the two countries specialize and trade, who should export digital cameras? A) There is no basis for trade between the two countries. B) China C) South Korea D) They should both be importing digital cameras.