Chapter One Test – Flashcards
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scarcity
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Economics deals primarily with the concept of
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resources are limited
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The phenomenon of scarcity stems from the fact that
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how society manages its scarce resources
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Economics is the study of
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the combined actions of millions of households and firms
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In most societies, resources are allocated by
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people face tradeoffs
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The adage, "There is no such thing as free lunch," means
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durable and nondurable goods
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Guns and butter are used to represent the classical societal tradeoff between spending on
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each member of society has the same income
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Economists use the word equality to describe the situation in which
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efficiency
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The property of society getting the most it can from its scarce resources is called
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a reduction in efficiency
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When the government attempts to improve equality in an economy the result is often
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what you give up to get that item
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The opportunity cost of an item is
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the price you pay for the ticket and the value of your time
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When computing the opportunity cost of attending a basketball game you should include
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takes an action only if the marginal benefit of that action exceeds the marginal cost of the action
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A rational decision maker
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small, incremental adjustment
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A marginal change is a
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rent the room because the marginal benefit exceeds the marginal cost
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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
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People face tradeoffs
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A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?
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benefits both the United States and Guatemala
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Trade between the United States and Guatemala
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because it allows specialization, which increases total output
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Senator Bright, who understands economic principles, is trying to convince workers in her district that trade with other countries is beneficial. Senator Bright should argue that trade can be beneficial
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are more efficient
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One advantage market economies have over centrally-planned economies is that market economies
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self-interest and prices
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In a market economy, economic activity is guided by
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influencing the actions of buyers and sellers
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Prices direct economic activity in a market economy by
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may be able to improve economic efficiency or equality
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Public policies
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market failure
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The term used to describe a situation in which markets do not allocate resources efficiently is
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externalities and market power
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Causes of market failure include
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refers to the quantity of goods and services produced from each unit of labor input
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The term "productivity"
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productivity
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What is the most important factor that explains differences in living standards across countries?
