Economics chapters 1 & 2

Recent changes occurring within the US healthcare system, including lower insurance reimbursement rates, have resulted in
More medical practices being owned by hospitals than by individual doctors

In economics, choices must be made because we live in a world of
Scarcity

Which of the following statements is true about scarcity
Scarcity refers to the situation in which unlimited wants exceed limited resources

The basic economic problem of ______ has always existed and will continue to exist
Scarcity

By definition, economics is the study of
The choices people make to attain their goals, given their scarce resources

An economic _____ is a simplified version of some aspect of economic life used to analyze an economic issue
Model

Where do economic agents such as individuals, firms and nations, interact with each other
In any area that brings together buyers and sellers

The term _____ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade
Market

Economists assume that individuals
Are rational and respond to incentives

Economists assume that rational behavior is useful in explaining choices people make
Even though people may not behave rationally at the time

Economisits assume that rational people do all of the following except
Undertake activities that benefit others and hurt themselves

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave _____ , meaning they make the best decisions given their knowledge of the costs and benefits
Rationally

Suppose that some teachers have decided that economic and financial uncertainty have made the prospect of retiring more risky, and therefore carry a higher cost than not retiring. By using all available information as they act to achieve their goals, these teachers are exemplifying economic idea that
People are rational

Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that
People are rational

Suppose the US government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000. These doctors would be exemplifying the economic idea that
People respond to economic incentives

Suppose the US government encourage consumers to trade in their old automobiles for more efficient, new models by paying up to $5000 for the old automobiles. These consumers would be exemplifying the economic idea that
People respond to economic incentives

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that
People with health insurance will be more likely to be overweight than people without health insurance

Since 1994, obesity rates in the United States
Have increased in all 50 states

In economics, the term ______ means “additional” or “extra.”
Marginal

A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of the following is a term used by economists to describe the money received from the sale of an additional bag of potatoes
Marginal revenue

Economists reason that the optimal decision is to continue any activity up to the point where the
Marginal benefit equals the marginal cost

Marginal analysis involves undertaking an activity
Until it’s marginal benefits equal marginal costs

The revenue received from the sale of ____ of a product is a marginal benefit to the firm
An additional unit

Making optimal decisions “at the margin” requires
Weighing the costs and benefits of a decision before deciding if it should be pursued

Making “how much” decisions involve
Determining me additional benefits and the additional costs of that activity

The extra cost associated with undertaking an activity is called
Marginal cost

DeShawn’s Detailing is a service that details cars at the customers homes are places of work. DeShawn’s cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the cars engine, a service that adds an additional $20 to the total cost of the package. What is DeShawn’s marginal benefit if he sells a basic detailing package
$75

Which of the following is an example of a “how much” decision
Dinah’s Diner is only open for breakfast and lunch. Dinah is trying to decide whether to open for dinner as well

Scarcity refers to a situation in which unlimited wants exceed the limited resources available to fulfill those wants (T/F)
True

Scarcity is a problem that will eventually disappear as technology advances (T/F)
False

An economic model is a simplified version of reality used analyze real-world economic situations (T/F)
True

The sales revenue a seller receives from the sale of an additional unit of goods is called the marginal benefit (T/F)
True

Optimal decisions are made at the point where marginal cost equals zero (T/F)
False

If it costs Sinclair $300 to produce three suede jackets and $420 to produce four suede jackets, then the difference of $120 is the marginal cost of producing the fourth suede jacket (T/F)
True

Supposed the extra cost for a doctor to keep his office open for an extra hour is $200. Then, the doctor should stay open for the extra hour even if he can generate additional revenue of $200 for that hour (T/F)
True

All economic questions arise from the fact that resources are unlimited (T/F)
False

Even if the population declines, scarcity will still exist (T/F)
True

The term “market” refers to trading arrangements by which buyers and sellers come together (T/F)
True

The additional cost to a producer of hiring an additional unit of labor is called the marginal cost (T/F)
True

Marginal benefit refers to the additional benefit that your activity provides to you (T/F)
True

If it costs Danitra $225 to create four necklaces and $275 to create five necklaces, then $50 is the marginal cost of producing the fifth necklace (T/F)
True

Suppose the extra cost to a doctor of keeping his office open on Saturdays is $1200. Then, the doctor should stay open on Saturdays if keeping the office open brings an additional revenue of $1200 or more (T/F)
True

The three fundamental questions that any economy must address are
What goods and services to produce, how will these goods and services be produced, and who receives them

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of
Trade-off

Society faces a trade-off in all of the following situations except
When some previously unemployed workers find jobs

The highest valued alternative that must be given up to engage in an activity is the definition of
Opportunity cost

The distribution of income primarily determines which of the fundamental economic questions
Who will receive the goods and services produced

Scarcity
Stems from the incompatibility between limited resources and unlimited wants

Tesla Motors manufacturers its cars at a plant in Fremont, California. At this plant, Tesla is able to take advantage of the high level of technical training possessed by its American workers, but it also sacrifices the ability to pay lower wages had it chosen to open its plant in a low-wage country such as Mexico, India, or China. In deciding to open the Fremont plant, Tesla
Faced a trade-off between higher cost in lower precision

The principle of opportunity cost is that
The economic cost of using a factor of production is the alternative use of that factor that is given up

The production possibilities frontier shows the ______ combinations of two products that may be produced in a particular time period with available resources
Maximum attainable

The production possibilities frontier model shows that
If all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good

The production possibilities frontier model assumes which of the following
The economy produces only two products

The attainable production points on a production possibilities curve are
The points along and inside the production possibility frontier

The points outside the production possibilities frontier are
Unattainable

In a production possibilities frontier model, a point _______ the frontier is productively inefficient
Inside

Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses
25 silk leaves

Pierre can produce either a combination of 20 bowties and 30 neckties or a combination of 35 bowties and 15 neckties. If he now produces 35 bow ties and 15 neckties, what is the opportunity cost of producing an additional 15 neckties
15 bow ties

If the production possibilities frontier is ______ , then opportunity costs are constant as more of one good is produced
Linear

The Great Depression of the 1930s with a large number of workers and factories unemployed would be represented in a production possibilities frontier graph by
A point inside the frontier

The opportunity cost of taking a semester-long economics class is
Equal to the highest value of an alternative use of the time and money spent on the class

Suppose there is no unemployment in the economy and society decides that it wants more of one good. Which of the following statements is true
It will have to give up production and consumption of some other good

If society decides it wants more of one good and all resources are fully utilized, then
It has to give up some of another good and incur some opportunity costs

According to the production possibility model, if more resources are allocated to the production of physical and human capital, then which of the following is likely to happen
Fewer goods will be produced for consumption today

Suppose your expenses for this term are as follows: tuition: $10,000, room and board: $6000, books and other educational supplies: $1000. Further, during the term, you can only work part time and earned $8000 instead of your full-time salary of $20,000. What is the opportunity cost of going to College this term, assuming that your room and board expenses would be the same even if you did not go to college
$23,000

A decrease in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point outside the frontier (T/F)
False

If a country is producing efficiently and is on the production possibilities frontier, the only way to produce more of one good is to produce less of the other (T/F)
True

Consider a country that produces only two goods: kayaks and coconuts. Suppose it is possible for this country to increase its production of kayaks without producing fewer coconuts. In this case, it’s current output combination is efficient (T/F)
False

Any output combination outside a production possibility frontier is associated with unused or underutilized resources (T/F)
False

An increase in the labor force shifts the production possibility frontier inwards over time (T/F)
False

If additional units of a good could be produced at a constant opportunity cost, the production possibility frontier would be bowed outward (concave) (T/F)
False

On a diagram of a production possibility frontier, opportunity cost is represented by the production possibility frontier shifting outward (T/F)
False

To increase gas mileage, automobile manufacturers make cars small and light. Large cars absorb more of the impact of an accident than small cars but yield lower gas mileage. These facts suggest that a negative relationship exists between safety and gas mileage (T/F)
True

An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a different point on the frontier (T/F)
False

If a country is producing efficiently and is on the production possibilities frontier, the country can produce more of one good without producing less of the other good (T/F)
False

You can have an absolute advantage whenever you
Can produce more of something then others with the same resources

Comparative advantage means the ability to produce a good or service
At a lower opportunity cost than any other producer

Specializing in the production of a good or service in which one has a comparative advantage enables the country to do all of the following except
Produce a combination of goods that lies outside its own production possibilities frontier

If the best surgeon in town is also the best at cleaning swimming pools, then according to economic reasoning, this person should
Specialize in being a surgeon because its opportunity cost is lower

Rayburn Reed is a highly talented photographer. He has chosen to specialize in photography because of all of the following except
His opportunity cost of pursuing another career is very low

Consider a country that produces only two goods: parrots and iguanas. Suppose it is impossible for this country to increase its production of parrots without producing fewer iguanas. In this case, its current output combination is efficient (T/F)
True

Any output combination along a production possibility frontier is associated with fully utilized resources (T/F)
True

A decrease in population shifts the production possibility frontier outwards over time (T/F)
False

If additional units of a good could be produced at an increasing opportunity cost, the production possibility frontier would be linear (T/F)
False