ECON IDLA FINAL REVIEW Essay

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*Washing cars kelly-20min drew-40min Vacuuming cars kelly-40min drew-20min The above table shows the amount of time it takes both Kelly and Drew to wash and vacuum cars. Who has the comparative advantage for vacuuming cars?
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Drew
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*Washing cars kelly-20min drew-40min Vacuuming cars kelly-40min drew-20min The above table shows the amount of time it takes both Kelly and Drew to wash and vacuum cars. Who has the absolute advantage in vacuuming cars?
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Drew
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Bob can produce eggs for $1.00 or milk for $2.00. Beth can produce eggs for $2.00 or milk for $1.00. Who as the comparative advantage for producing eggs?
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Bob
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*Human effort applied to the production of goods is called ____________.
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labor
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Economies have
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unlimited needs and wants
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The basic problem economics seeks to solve is
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scarcity
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The satisfaction or usefulness derived from a good is called
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utility
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A firm is trying to decide how many employees to hire. They are seeking to solve which of the three fundamental questions of economics?
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How to produce.
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Deciding whether or not to eat an additional snickers bar or not, could be considered making a choice at the margin.
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True
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warehouse
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Capital
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construction boss
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Labor
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coal
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Natural Resource
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Money needed to buy capital is called
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financial capital.
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In order for a natural resource to be considered a resource, it must be able to be used in the production of other goods.
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True
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Which of the following is not considered a criterion for a capital good:
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The resource must be found in nature.
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The limited resources in demand in society are called the ___________ of production.
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factors
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Describe what scarcity is and how it is the basic economic problem. Explain how societies seek to solve this problem. Include in your answer a discussion of the three basic economic questions and opportunity costs.
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Scarcity is the limited resources in a world will unlimited wants. This is a problem because it means that eventually the desired resources that people want and businessmen benefit from will eventually run out or become scarce enough to where they can no longer be used. Scarcity comes from the 3 basic economic questions. What should be produced is based on whom it should be produces or who is the demand. Societies are seeking to solve this problem by looking at and changing production or how it should be produced. The problem can be minimized by restoring resources that can be restored for example trees for lumber. Resources such as oil on the other hand take thousands of years to be produced, therefore another effort must be made where other alternatives are used for power such as electric cars. If an industry is limited though however it is not always good due to the opportunity costs. If businesses are lost due to scarcity more people can lose their jobs and therefore hurt the economy. But, if new productions are found more jobs and businesses can be created.
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*The main goal of Karl Marx was to create an economy in which
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all of the above
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What is the relationship between government involvement, and the type of economic system a country has?
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In a command economy the government is highly involved in answering the three economic decisions.
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Karl Marx believed that common ownership of resources was the only way to have a classless society.
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True
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There is no competition in a command economy.
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True
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Mercantilism dominated Europe in the 1700s.
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True
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*Under the mercantile system in Europe in the 1700s, governments regulated their economies by
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ensuring exports outnumbered imports and that high tariffs were placed on imported goods.
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*Choosing your own career is an example of the economic goal of _______________.
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economic freedom
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Weaknesses of a command system include
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1)uniques ideas are stifled. 2)fewer choices available. 3)lack of incentives.
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In a ___________ economy one positive attribute is the fact that everyone knows their role. Such roles are defined by the customs of culture and elders.
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traditional
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In a free market system, market prices are determined by
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1)self-interest. 2)competition.
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What is an advantage to a command system?
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Decisions and changes can be made quickly.
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Laissez Faire Economics refers to a hands-on approach.
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False
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*Adam Smith believed that the main advantage of allowing the “invisible hand” to work in an economy was that
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individuals would be driven by incentives rather than force.
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*Which of the following best examines economic growth and population growth?
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As an economy grows, a populations’ needs and wants increase, therefore wise use of resources becomes more important for economic growth.
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In a ____________ economy decisions of what to produce, who to produce for, and how to produce are decided by individuals.
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traditional
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The price of butter increases. What will happen to the demand for margarine?
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it wil increase
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Which of the following items most likely have inelastic demand?
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1)automobiles 2)toothpicks 3)salt
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If a product represents a large portion of a consumer’s income, that product will be
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elastic
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The _________ ______ __________ states that as price goes up, quantity demanded goes down.
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Law of Demand
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Determinants of demand are factors that will
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shift the demand curve regardless of price
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The demand curve will shift to the left if
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1)the item becomes less popular. 2)consumers’ incomes decrease.
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Consumers’ incomes rise. This will cause the demand curve to shift to the ___________.
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right
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Amount demanded at various prices Group of buyers and sellers Amount demanded at one particular price. Percentage change in price affects change in demand
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Demand Market Quantity demand Demand Elasticity
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When considering whether or not to consume one more unit of an item, you are making a choice at the margin.
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Ture
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As the price of juice increases, the amount you are willing and able to buy will ____________.
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decrease
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A measure of the satisfaction gained from consuming a good is called ____________.
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utility
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Which of the following does NOT explain why the demand curve has a negative slope?
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The relationship between price and quantity demand is direct.
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The price for tea decreases. What will happen to the demand curve for coffee?
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shift left
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The demand curve has a _____________ slope.
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negative
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Which of the following factors are determinants of demand?
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1)Prices 2)Market size 3)Incomes 4)Expectations
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At a price of $10, how many widgets are demanded for curve D? If the price dropped from $10 to $8 how many widgets would be demanded for curve D? If the price of watchamacallits (a substitute for widgets) increases, how will this affect curve D2?
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15 17 shift to the right
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Explain the law of demand. Include in your answer a discussion of how diminishing marginal utility, the income effect and the substitution effect explain this law.
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The law of demand states that the higher the price of a product the less the consumer will demand therefore creating an inverse relationship between price and quantity demand. Marginal utility diminishes as more of the same product is bought because there is less satisfaction from having more of a good, therefore people are less willing to buy additional product at the same price thus lowering the quantity demand. If a producer wants the consumers to buy more of a product they need to reduce the price for them to continue to buy more because the satisfactory decreases. With the income effect the purchasing power of the consumers in affected by sudden changes in price. For instance, if the price of a product goes up than consumers will buy less. On the other hand if the price is lower then usual the consumer will buy more. The substitution effect can also help explain the law of demand. If the price of a similar good is lower than the original good the consumer will most likely go for the cheaper substitution good therefore increasing the demand of the substitution good and decreasing the demand of the original good.
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A price increase or decrease will cause movement along the demand curve; whereas, Determinants of Demand will cause the demand curve to shift. Describe two ways that a Determinant of Demand might cause a demand curve to shift.
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If the total income increases the demand curve will shift right because the people have more money to spend and are willing to pay a higher price but if the total income decreases the demand curve will shift left because people will be less willing to buy an expensive product because they have less money. Also complement goods and their prices can effect the demand curve of a product. For instance DVDs and DVD players, if the DVD players price decreases then the demand for DVDs will increase and shift the curve to the right
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A surplus exists when quantity _________ is greater than quantity demanded.
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supplied
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Producer’s of candy, produce more on Valentine’s day. This is an example of an increase in quantity supplied.
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False This is an increase in supply, not quantity supplied. This is because supply would increase at all prices, because of producer expectations that more would be demanded.
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In a free-enterprise market, producers and consumers communicate through
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Price
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Amount of output per unit of input. Money given to a company or individual by the government. Items used in the process of production. Fee charged by government on a product.
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productivity subsidy input tax
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According to the law of supply, price and quantity have a direct relationship.
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True
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Production costs that change as the level of output changes are
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variable costs
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The amount of money suppliers have left after paying their costs is called __________.
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profit
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Which of the following has elastic supply?
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T-shirts
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Competition tends to decrease supply
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False
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A construction company adds one worker each week, on a construction project. They add no other inputs. What will happen to marginal productivity?
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increase initially and then decrease.
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The total amount of money producers earn from their activities in a given period is
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revenue
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A restaurant adds one more waitress to their establishment each week with out adding any other inputs.
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marginal productivity to increase initially, and then decrease. total productivity to decrease eventually.
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Elasticity of supply measures the degree to which a change in __________ causes a change in quantity supplied.
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Price
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If a supplier expects the future profits of their good to increase they will
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decrease supply now.
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Prices of resources fall causing supply to
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increase
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A new automobile company comes to town. This causes
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the supply curve to shift right.
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Determinants of supply cause a decrease in the supply of a good. The supply curve for this product will shift ___________.
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left
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Due to cold weather, many farmers lose their crop of apples, causing the supply of apples to decrease. This means
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the number of apples available at all possible prices will decline.
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From what you have learned, describe the role of buyers and sellers in determining market clearing price. Provide “real life” scenarios and examples.
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Buyers want to get the most bang for their buck while sellers want to get as much profit as they can therefore leading to pull and tug for determining the price of a good. The market clearing price is most often the equilibrium price where the demand and supply curves intersect. The buyers mostly cause effects in the demand curve while the sellers effect the supply curve (yet they can sometimes cross over). For example if a donut company’s taxes increase it would make it more expensive to produce donuts and therefore the supply curve would shift left increasing the equilibrium price. On the side of the consumers if they expect that prices of donuts will rise due to a new tax that will be put in place the demand curve will shift right due to an increase in demand and the price. The market clearing price is how much the consumer are willing to pay and if the sellers set the price too high they will not profit.
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In which market do sellers spend large amounts of money advertising their product?
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Monopolistic competition
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In which system do the highest barriers to entry exist?
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Monopoly
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A ________ __________ is a business owned by one person.
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sole proprietorship
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Under pure competition, each individual firm is too small to influence price
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True
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In which market do buyers choose products based solely on price?
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Perfect competition
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*The owner of a gas station on a lonely highway could be said to have a geographic monopoly.
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True
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In a perfectly competitive market, price is set by
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Supply and Demand
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No market exists in the form of monopolistic competition.
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False
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One advantage of a sole proprietorship is that the owner’s personal assets will not be at risk.
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False
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The most important component in the definition of an entrepreneur is that of
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risk-taker
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One question you might ask yourself in determining if you should start your own business includes, “How good am I at making decisions?”
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True
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Not all business owners are entrepreneurs. Entrepreneurs create new or improved products.
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True
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One of the reasons people like to start their own businesses is to accommodate a desired lifestyle.
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True
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An individual who assumes the ___________ of creating a business is called an entrepreneur.
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risk
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For most people, wage is the most important factor in choosing a job.
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True
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Tactics available to unions include striking, picketing and boycotting.
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True
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____________ bargaining is the process used between employees and employers to settle grievances.
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Collective
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What is true about unions in recent decades?
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1)Union membership has decreased. 2) A shift from manufacturing based economy to a service-based economy has influenced less membership.
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Refusal to buy a company’s product is called
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boycotting
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A refusal to work until grievances have been addressed is known as
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Striking
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Most individuals access money markets through a bank.
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True
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Which type of savings market is generally used for shorter term savings?
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Money market
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If using a bank, lenders do not have to lend money for the exact amount of time a borrower wants to borrow for, because banks allow for a disconnect between borrowers and lenders (ie. different time increments between borrowers and lenders).
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True
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Banks are regulated by ___________ and state governments.
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federal
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The cost of using credit is called ______________.
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interest
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If you borrow $100, at 10% interest per year, how much will you owe in 10 years?
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$200
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This formula P x I x N represents
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simple interest
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Groceries would be considered variable expenses.
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True
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Interest that is that is determined by the original amount of the loan, in addition to interest accrued is called ____________ interest.
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compound
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When you secure a loan, you promise property in return if you don’t repay your loan. This is called
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collateral
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The type of investment in which you loan your money to someone in return for interest is called
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debt investment
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One disadvantage of bartering or trading items instead of using currency is
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the fact that not all items have the same measurement of value.
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The difference between a charge card and a credit card is that the balance on a charge card needs to be paid in full, while on a credit card only a minimum payment is required each cycle.
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True
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Which of the following do credit agencies weigh more heavily in determining your credit score?
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Payment history
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Laws in the United States have been created to balance the use of credit by consumers and those lending credit.
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True
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Filing for bankruptcy
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will relieve you of SOME debts and affects your credit rating for 10 years.
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You go to the mall and the store clerk asks you if you’d like to sign up for their charge card. This type of credit is called
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installment credit.
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The purpose of a credit ____________ is to notify lenders who the risky borrowers are.
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score
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A __________ tax imposes a higher rate of taxation on those with lower income
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regressive
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A __________ tax imposes the same percentage of tax on everyone.
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proportional
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The ability to pay principle of taxation says that people should pay taxes according to
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their ability to pay regardless of the benefits they receive.
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A ___________ tax increases with an increase in income.
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progressive
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Criteria for taxes include
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relatively efficient and successful. laws should be easily understood. fairness of taxation.
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During the presidencies of JFK and Johnson, tax cuts helped to create economic expansion.
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True
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One main cause of the Great Depression may have been the decline in stock values due to investors selling at the peak of the economy.
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True
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Prior to the Great Depression, no one thought the government should intervene to stabilize the business cycle.
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True
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An increase in income taxes is an example of expansionary fiscal policy.
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False
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The plan to increase or decrease supply of money in the economy by the fed is called fiscal policy.
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false
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The goal of a/an ___________ money policy is to put more money into circulation.
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easy
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The economy seems to be heading for a recession. Which of the following would the FED most likely do?
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increase the number of bonds they buy in the market.
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The goal of a/an ___________ money policy is to put less money into circulation.
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tight
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Real GDP
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accounts only for products produced within the country’s physical borders.
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Typically, interest rates are lower at which part of the business cycle?
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trough
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An example of a lead indicator might include
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an increase in the number of businesses failing.
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When economists determine what part of the business cycle the economy is operating at they inspect leading indicators such as
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the price of raw materials
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The business cycle shows us that although the economy will always experience periods of increasing and decreasing GDP, there is a general tendency for the GDP to grow over time.
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True
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The OMB has become the most influential office of the executive branch.
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False
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*One purpose of regulating business activity is to decrease negative externalities
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True
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The federal budget is initially written by
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the President
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National defense is an example of a ___________ good.
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public
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Which of the following laws made monopolies illegal?
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Sherman antitruse
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A price ___________ is a legal minimum that can be charged for a good.
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floor
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Which of the following laws outlawed price discrimination?
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Clayton Antitrust
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Which of the following might cause the government’s role in the economy to grow?
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Economic prosperity Decrease in population Economic hardship National emergencies
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The U.S has filed the most complaints with the WTO than any other country.
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True
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*As a developing country, Mexico
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saw NAFTA as a positive thing because an open market would encourage economic growth.
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Nations with most favored nation status
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are subject to a reduction in tariffs placed on their goods.
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Using barriers to trade works only if
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other nations do not use barriers.
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*The supply of U.S dollars is determined by the demand for foreign goods and services.
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True
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Economic _____________ is the idea that a nation cannot produce everything it needs on its own.
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interdependence
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You are going on vacation to France. As a tourist you would probably prefer a
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strong American dollar
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Why do countries try to manipulate the value of their currency?
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to improve their balance of trade through making foreign products less expensive to buy.
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Appreciation of currency, means that you can buy more with the same amount of money, than you could prior to appreciation.
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True
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If a country wanted to decrease the value of its dollar it would
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increase the supply of money.
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If you are a U.S manufacturer, you would prefer a
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weaker American dollar
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A positive balance of trade is called a trade _________.
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surplus
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A/an ______________ is a law cutting off imports and exports to and from a specific country.
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embargo
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One argument against trade is that it will destroy domestic industries.
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True
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A country seeks to ___________ more than they ______________.
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export, import
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You are starting a new business manufacturing tires. As an infant industry you probably
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dislike free trade because you have to compete with cheaper foreign products.
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Import _____________ limit the amount of a good that can be imported into a country.
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quotas
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The growth of exports has risen significantly over the past 50 years.
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True
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If a country can produce a good at a lower resource cost than another country they have
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absolute advantage
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*When a country can produce something more efficiently than another country they have _____________ advantage.
answer

question

*Every economy seeks to answer the three fundamental questions including what to produce, how to produce, and why to produce.
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False
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*Which of the following would represent a movement along the demand curve?
answer

question

*The relationship between price and quantity demand is (inverse/direct)
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inverse
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*A company decides to decrease their prices and this causes their total revenue to remain the same. In this instance the company’s product has
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neither elastic or inelastic demand.
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*As you eat more and more Snickers bars, the demand curve for Snickers bar consumption is negative because of
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diminishing marginal utility.
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*A price increase decreases a company’s total revenue. This means the company’s product has inelastic demand.
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False, elastic
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*If the price of oil significantly drops, the supply of gasoline will
answer

decrease
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*The supply of a product increases. At the same time the demand of the product increases as well. This causes equilibrium
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question

Which of the following have inelastic supply? a) Automobiles b) Diamonds c) Full grown crops
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all of them
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*Social security would be an example of a/an
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entitlement
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*Arguments against free trade include the idea that our national defense will be hurt.
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True
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*Suppose the Canadian currency is weak compared to the U.S dollar. You would expect that Canadians would
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buy less U.S goods and services.
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*The purpose of NAFTA was to decrease the number of tariffs from 15 to 0 in five years.
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False

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