ECON CH 2 – Flashcard

Economists make use of assumptions, some of which are unrealistic, for the purpose of a. teaching economics to people who have never before studied economics. b. advancing their political agendas. c. developing models when the scientific method cannot be used. d. focusing their thinking.

Which of the following statements about models is correct? a. The more details a model includes, the better the model. b. Models assume away irrelevant details. c. Models cannot be used to explain how the economy functions. d. Models cannot be used to make predictions.

A circular-flow diagram is a model that a. helps to explain how participants in the economy interact with one another. b. helps to explain how the economy is organized. c. incorporates the markets for the factors of production. d. All of the above are correct.

Factors of production are a. the mathematical calculations firms make in determining their optimal production levels. b. social and political conditions that affect production. c. the physical relationships between economic inputs and outputs. d. inputs into the production process.

The two loops in the circular-flow diagram represent a. (i) the flow of goods and (ii) the flow of services. b. (i) the flow of dollars and (ii) other financial flows. c. (i) inputs into production processes and (ii) outputs from production processes. d. (i) the flows of inputs and outputs and (ii) the flow of dollars.

Factors of production are a. used to produce goods and services. b. also called output. c. abundant in most economies. d. assumed to be owned by firms in the circular-flow diagram.

Which two groups of decisionmakers are included in the simple circular-flow diagram? a. markets and government b. households and government c. firms and government d. households and firms

In the markets for the factors of production, a. households are sellers and firms are buyers. b. households are buyers and firms are sellers. c. households and firms are both buyers. d. households and firms are both sellers.

Which of the following transactions does not take place in a market for a factor of production? a. Karl provides plumbing services for a plumbing company and receives an hourly wage from the company for his services. b. Juanita works as a marriage counselor and her clients pay her on a per-hour basis for her services. c. Trish owns several shopping malls and receives rent payments from the companies that operate those malls. d. Ben sells advertising for a newspaper and receives a commission from the newspaper company for each advertisement that he sells.

In economics, capital refers to a. the finances necessary for firms to produce their products. b. buildings and machines used in the production process. c. the money households use to d. purchase firms' output. goods, but not to services.

The amount by which firms' sales revenue exceeds their payments to factors of production is called a. rent b. capital. c. profit. d. interest.

Production is efficient if the economy is producing at a point a. on the production possibilities frontier. b. outside the production possibilities frontier. c. on or inside the production possibilities frontier. d. inside the production possibilities frontier.

If an economy is producing efficiently, then a. there is no way to produce more of one good without producing less of another good. b. it is possible to produce more of both goods without increasing the quantities of inputs that are being used. c. it is possible to produce more of one good without producing less of the other. d. it is not possible to produce more of any good at any cost.

A production possibilities frontier that is a straight line shows a. a truer picture of the real world than does a bowed-out production possibilities frontier. b. that resources can be shifted easily and seamlessly from the production of one good to the production of a different good. c. that the opportunity cost of one good in terms of another good depends on the quantities of the two goods that the economy is producing. d. All of the above are correct.

Here are some production possibilities for an imaginary economy for a given year. Cars: 10, 12, 14 Newspaper: 400, 360, ? If the production possibilities frontier is bowed outward, then in place of "?" we might have a. 330. b. 320. c. 310. d. All of the above are possible.

16 Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that a. the nation is producing beyond its capacity, and inflation will occur. b. the nation is not using all available resources or is using inferior technology or both. c. the nation is producing an efficient combination of goods. d. there will be a large opportunity cost if the nation tries to increase production of any good.

17. The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the a. amount of the other good that must be given up. b. market price of the additional amount produced. c. amount of resources that must be devoted to its production. d. number of dollars that must be spent to produce it.

19. A production possibilities frontier can shift outward if a. government increases the amount of money in the economy. b. there is a technological improvement. c. resources are shifted from the production of one good to the production of the other good. d. the economy abandons inefficient production methods in favor of efficient production methods.

20. A production possibilities frontier shifts outward when a. the economy experiences economic growth. b. the desires of the economy's citizens change. c. at least one of the basic principles of economics is violated. d. opportunity costs are lessened.

26. Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 50 units of food and 30 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 55 units of food and 30 machines. Which of the following statements is true? a. Because the technological advance occurred in the machine-making industry, it will not be possible to increase food production without reducing machine production below 30. b. Because the technological advance occurred in the machine-making industry, increases in output can only occur in the machine industry. c. In order to increase food production in these circumstances without reducing machine production, the economy must reduce inefficiencies. d. The technological advance reduced the amount of resources needed to produce 30 machines. These resources could be used to produce more food.

27. The country of Econoland produces two goods, textbooks and widgets. Last year it produced 200 textbooks and 500 widgets. This year it produced 250 textbooks and 600 widgets. Given no other information, which of the following events could not explain this change? a. Econoland experienced a reduction in unemployment. b. Econoland experienced an improvement in widget-making technology. c. Econoland acquired more resources. d. Any of these events could, in fact, explain the change.

28. Economists view positive statements as a. affirmative, justifying existing economic policy. b. optimistic, putting the best possible interpretation on things. c. descriptive, making a claim about how the world is. d. prescriptive, making a claim about how the world ought to be.

29. Which of the following is an example of a positive statement? a. Prices rise when the government prints too much money. b. If welfare payments increase, the world will be a better place. c. Inflation is more harmful to the economy than is unemployment. d. When public policies are evaluated, the benefits to the economy of improved equity should be considered more important than the costs of reduced efficiency.

30. Which of these statements is a normative statement (as opposed to a positive statement)? a. Gasoline prices ought to be lower than they are now. b. The federal government should raise taxes on wealthy people. c. The social security system is a good system and it deserves to be preserved as it is. d. All of the above are normative statements

31. A type of graph that can be used to display the relationship between two variables is a. a pie chart. b. a bar graph. c. a time-series graph. d. the coordinate system.

39. Suppose that someone makes the argument that because empty alcohol containers are found at many accidents, the containers cause accidents. This would be an example of a. sound logic. b. reverse causality. c. omitted variables. d. slope.

40. In the early 19th century, the Russian government sent doctors to southern Russian villages to provide assistance during a cholera epidemic. The villagers noticed that wherever doctors appeared, people died. Therefore, many doctors were chased away from villages, and some were even killed. This reaction to the correlation between doctors and deaths is most likely a problem of a. omitted variables. b. reverse causality. c. government propaganda. d. medical incompetence

An economic model can accurately explain how the economy is organized because it is designed to include, to the extent possible, all features of the real world.

In a simple circular-flow diagram, firms own the factors of production and use them to produce goods and services.

A production possibilities frontier is a graph that shows the various combinations of outputs the economy can produce given its factors of production and its technology.

An economy is being efficient if it is impossible to produce more of one good without producing less of another.

If government regulations designed to protect wetlands removed very productive farmland from production, the production possibilities would shift inward.

"Society would be better if the welfare system were abolished" is a normative statement, not a positive statement.

Two variables that are negatively related will move in opposite directions.