Econ – Flashcard Definitions

Flashcard maker : Lily Taylor
A rational decision maker takes action if and only if the marginal cost exceeds the marginal benefit. (t/f)
F

One way that governments can improve market outcomes is to ensure that individuals are able to own and exercise control over their scarce resources. (t/f)
T

Historical episodes allow economists to illustrate and evaluate economic theories of the present.
T

When free markets ration goods with prices, it is both efficient and impersonal. (t/f)
T

In the circular-flow diagram, one loop represents the flow of goods and services, and the other loop represents the flow of factors of production.
F

All goods and services are sold in perfectly competitive markets.
F

Points on the production possibilities frontier represent efficient levels of production.
T

If the demand for a good falls when income falls, then the good is called an inferior good.
F

A reduction is an input price will cause a change in quantity supplied, but not a change in supply.
F

A price ceiling is a legal minimum on the price at which a good or service can be sold.
F

Economics promotes which of the following as the way to make the best decision.
A) Continue an enjoyable activity as long as you do not have to pay for it.
B) Continue an enjoyable activity until it is no longer enjoyable.
C) Continue an enjoyable activity until you cannot afford to pursue it.
D) Continue an enjoyable activity up to the point where the marginal benefit equals its marginal cost.
D

The scientific method is applicable to studying
A) natural sciences, but not social sciences.
B) social sciences, but not natural sciences
C) Both natural and social sciences.
D) none
C

In the circular flow diagram, firms produce
A) goods and services using factors of production
B) output using inputs
C) factors of production using goods and services
D) both a and b
D

The production possibilities frontier is a graph that shows the various combinations of output that an economy
A) can produce
b) wants to produce
c) should produce
d) demands
a

When an economy is operating inside its production possibilities frontier, we know that
a) there are unused resources or inefficiencies in the economy
b) all of the economy’s resources are fully employed
c) economic growth would have to occur in order for the economy to move to a point on the frontier
d) in order to produce more of one good, the economy would have to give up some of the other good.
a

For economists, statements about the world are of two types:
a) positive statements and normative statements
b) true and false statements
c) specific statements and general statements
d) assumptions and theories
a

Increasing opportunity cost along a borrowed out production possibilities frontier occurs because
A) of inefficient production
b) of ineffective management by entrepreneurs
c) some factors of production are not equally suited to producing both goods and services
d) of the scarcity of factors of production
c

Specializing in the production of a good or service in which one has a comparative advantage enables a country to do which of the following
a) never have to engage in trade with other nations
b) increase the variety of products that it can produce with a decrease in resources
c) consume a combination of goods that lies outside its own production possibilities frontier
d) produce a combination of goods that lies outside its own production possibilities frontier
c

In a market economy, supply and demand are important because they
a) play a critical role in the allocation of the economy’s scarce resources
b) determine how much of each good gets produced
c) can be used to predict the impact on the economy of various events and policies
d) all of the above
d

Buyers and sellers who have no influence on market price are referred to as
a) price takers
b) monopolists
c) market pawns
d) price makers
a

Which of these statements best represents the law of demand
a) when buyers’ tastes for a good increase, they purchase more of the good
b) when income levels increase, buyers purchase more of most goods
c) when the price of a good decreases, buyers purchase more of the good
d) when buyers’ demands for a good increase, the price of the good increases
c

Government policies can change the costs and benefits that people face. Those policies have the potential to
a) alter people’s behavior
b) alter people’s decisions at the margin
c) produce results that policymakers did not intend
d) all
d

Laws that restrict the smoking of cigarettes in public places are examples of government ___ in the market.
a) equity
b) equality
c) intervention
d) productivity
c

Suppose that a decrease in the price of good X results in fewer units of good Y being sold. This implies that X and Y are
a) complementary goods
b) normal goods
c) inferior goods
d) substitute goods
d

Economics deals primarily with the concept of
A) scarcity
b) money
c) poverty
d) bankning
a

When we move along a given demand curve,
a) only price is held constant
b) income and price are held constant
c) all nonprice determinants of demand are held constant
d) all determinants of quantity demanded are held constant
c

When calculating the cost of college, which of the following should you probably not include
a) the cost of rent for your offcampus apartment
b) the cost of books required for college classes
c) the income you would have earned had you not gone to college
d) the cost of tuition
a

The basic principles of economics suggests that
a) markets are seldom, if ever, a good way to organize economic activity
b) government should become involved in markets when trade between countries is involved
c) government should become involved in markets when those markets fail to produce efficient of fair outcomes
d) all
c

The term used to describe a situation in which markets to not allocate resources efficiently is
a) economic meltdown
b) market failure
c) equilibrium
d) the effect of the invisible hand
b

Published in 1776, ____ was written by Adam Smith.
a) the General Theory of employment, interest, and money
b) the Communist Manifesto
c) the Declaration of Economics
d) An Inquiry into the Nature and Causes of Wealth of nations
d

Economic surplus is maximized in a competitive market when
a) demand is equal to supply
b) the deadweight loss equals the sum of consumer surplus and producer surplus
c) marginal benefit equals marginal cost
d) producers sell the quantity that consumers are willing to buy
c

If a decrease in income increases the demand for a good, them the good is
a) a substitute good
b) a complementary good
c) a normal good
d) an inferior good
d

If the price of a good is low,
a) the quantity supplied of the good could be zero
b) firms would increase profit by increasing output
c) the supply curve for the good will shift to the left
d) firms can and should raise the price of the product
a

If a surplus exists in a market, then we know that the actual price is
a) above the equilibrium price and quantity supplied is greater than quantity demanded
b) above the equilibrium price and quantity demanded is greater than quantity supplied
c) below the equilibrium price and quantity demanded is greater than quantity supplied
d) below the equilibrium price and quantity supplied is greater than quantity demanded
a

If the demand for a product decreases, then we would expect
a) equilibrium price to increase and equilibrium quantity to decrease
b) equilibrium price to decrease and equilibrium quantity to increase
c) equilibrium price and equilibrium quantity to both increase
d) equilibrium price and equilibrium quantity to both decrease
d

Policymakers use taxes
a) to raise revenue for public purposes, but not to influence market outcomes
b) both to raise revenue for public purposes and to influence market outcomes
c) when they realize that price controls alone are insufficient to correct market inequities
d) only in those markets in which the burden of the tax falls clearly on the sellers
b

To say that a price ceiling is binding is to say that the price ceiling
a) results in a surplus
b) is set above the equilibrium price
c) causes quantity demanded to exceed quantity supplied
d) all
c

Which of the following is not a rationing mechanism used by landlords in cities with rent control?
a) waiting lists
b) race
c) price
d) bribes
c

When a binding price floor is imposed on a market to benefit sellers,
a) no sellers actually do benefit
b) some sellers benefit, but no sellers are harmed
c) some sellers benefit and some sellers are harmed
d) all sellers benefit
c

A minimum wage that is set above a market’s equilibrium wage will result in
a) an excess demand for labor
b) an excess supply of labor, that is, unemployment
c) an excess demand for labor, that is, a shortage of workers
d) an excess supply of labor, that is, a shortage of workers
b

Opponents of the minimum wage point out that the minimum wage
a) encourages teenagers to drop out of school
b) prevents some workers from getting needed on-the-job training
c) contributes to the problem of unemployment
d) all above
d

Guns and butter are used to represent the classic societal tradeoff between spending on
a) durable and nondurable goods
b) imports and exports
c) national defense and consumer goods
d) law enforcement and agriculture
c

Which of the following phrases best captures the notion of efficiency?
a) absolute fairness
b) equal distribution
c) minimum waste
d) equitable outcome
c

A tax on sellers will
a) shift the demand curve upwards by the amount of tax
b) shift the demand curve downwards by the amount of the tax
c) shift the supply curve upwards by the amount of the tax
d) shift the demand curve downwards by the amount of the tax
c

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