Flashcards and Answers – Chapters 1 & 2
Flashcard maker : Mary Browning
Economics can best be described as the study of:
how people, institutions, and society make choices under conditions of scarcity.
Economic models do not reflect the full complexity of reality and instead are based on:
purposeful simplifications.
The economy of North Korea would best be classified as:
a command system.
Macroeconomics focuses on:
total output and the general level of prices in the economy.
The primary goal of economic activities is to:
make the most efficient use of scarce productive resources.
The branch of economics that focuses primarily on aggregates is:
macroeconomics.
A market system is best characterized by:
the private production of most capital goods.
Macroeconomics is the study of economics from the standpoint of:
the overall economy.
Among competing issues, the most important concern of economics is with the:
efficient use of limited productive resources to satisfy economic wants.
In 1999, McDonald’s introduced the “Big Xtra” and it turned out to be a successful product. In the marketplace for fast-food products, this success would be an example of:
consumer sovereignty.
Markets in which firms sell their output of goods and services are called:
product markets.
One reason economists have difficulty applying the scientific method is because:
controlled laboratory experiments are often infeasible and sometimes impossible.
The process of developing hypotheses, testing them against facts, and using the results to construct theories is called:
the scientific method.
Capitalism is an economic system that:
gives private individuals and corporations the right to own productive resources.
Economic growth may be represented by a:
rightward shift of the production possibilities curve.
According to the text, what is the largest source of earned income for U.S. households?
Wages and salaries.
Which situation would most likely cause a nation’s production possibilities curve to shift inward?
The destruction from bombing and warfare in a losing military conflict
Increases in resources or improvements in technology will tend to cause a society’s production possibilities curve to:
shift outward or to the right.
The market system is characterized by:
private ownership of the means of production.
Microeconomics focuses on:
the individual units that make up the whole of the economy.
On a production possibilities curve, the optimal or best combination of output for any society:
depends upon the preferences of society.
When producers maximize their profits from the production of a good or service, they are:
exhibiting purposeful behavior.
An “aggregate”:
treats a collection of specific units as one unit.
Which statement best describes a capitalist economy?
The production and allocation of goods and services is determined primarily through markets.
The circular flow model shows that the goods and services produced by business firms are sold through:
product markets.
Which fundamental question about a competitive market system primarily focuses on technological progress and capital accumulation?
How will the system promote progress?
The opportunity cost of a new national park is the:
alternative uses for the land and funding for the park.
Which is considered to be an economic resource by economists?
Labor
Economic resources in the capitalist system are brought together by:
entrepreneurs
In a capitalistic economy:
there is a reliance on the market system.
In a market economy, the money incomes of individuals depend primarily upon:
the value and amounts of the productive resources the individuals possess.
Which is not considered to be an economic resource?
Money
The “invisible hand” concept to describe the guiding function of prices was developed by:
Adam Smith
A basic assumption used in most economic theories is that:
All things remain the same
The basic economic problem is essentially one of deciding how to make the best use of:
limited resources to satisfy unlimited economic wants.
The graph above shows two production possibilities curves for a nation that produces two goods, Y and Z. PP1 and PP2 show the production possibilities for years 1 and 2. The nation’s total production then decreased after year 2. This change could be represented by a move from:
E to D. (picture is missing second line, two points should align with one another)
The individual who brings together economic resources and assumes the risk in a capitalist economy is called the:
entrepreneur.
The graph above shows the production possibilities curve for an economy producing two goods, X and Y. Which of the points on the graph indicate unemployed resources?
E and A only (in picture it would be D)
Which expression is another way of saying “marginal cost”?
additional cost
The circular flow model:
illustrates the interdependence of businesses and consumers.
An economic model is:
built using theory.
Points C, D, E, and H on the above graph show: (in this graph it is points A,B,C)
possible combinations of food and clothing. (This graph: possible combinations of capital goods, and consumer goods)
An economic system in which money is not used is a:
barter economy.
Which statement best describes a command economy?
The production and allocation of goods and services is determined primarily through government.
Another term for capitalism is the:
market system.
In the circular flow model, households:
buy products and sell resources.
The influential book written by Adam Smith was:
The Wealth of Nations.
Which is an illustration of a microeconomic question?
Will a new type of television set increase the number of buyers?
The maximization of profit and the minimization of losses is the primary factor affecting the economic decision making of:
entrepreneurs
Which best describes the “invisible hand” concept?
The desires of producers and resource suppliers to further their own self-interest will tend to promote the social interest.
The private ownership of property resources and use of prices to direct and coordinate economic activity is characteristic of:
a market system.
Opportunity cost is best defined as:
the value of the best forgone alternative.
Refer to the above production possibilities curves. Curve (a) is the current curve for the economy. Given production possibilities curve (a), point N suggests that the economy is:
attaining both full employment and full production. (in picture point C is gone, second line in picture is missing: question refers to point A)
The purpose of the ceteris paribus assumption used in economic analysis is to:
restrict the analysis to the effect of a single economic factor.
Along a production possibilities curve, an increase in the production of one type of good can be accomplished only by:
decreasing the production of the other type of good.
The simple circular flow model shows that workers, entrepreneurs, and the owners of land and capital offer their services through:
resource markets.
The production possibilities table below shows the hypothetical relationship between the production of capital goods and consumer goods in an economy.Refer to the table above. What is the opportunity cost of producing the third unit of capital goods?
Going from C to D is a one-unit increase in capital goods and it costs 6 units of consumer goods (from 13 down to 7).
As a consequence of the condition of scarcity:
individuals and communities have to make choices from among alternatives.
Which is characteristic of the market system?
Free enterprise and choice.
