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Choices made by people faced with scarcity

answer

Economics is best defined as the study of

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how society uses limited resources

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Economics is the study of

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Scarcity

answer

_______ is a situation in which resources are limited in quantity and can be used in different ways.

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resources are limited in quantity and be used in different ways

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Scarcity can best be defined as a situation in which

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people must make choices

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Because resources are limited

question

answers the question "What ought to be?"

answer

Normative economics

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Should the government provide free prescription drugs to senior citizens?

answer

What is an example of a normative question?

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If the college increased tuition, will class sizes decline?

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What is an example of a question answered with positive economic analysis?

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a market

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An arrangement that allows buyers and sellers to exchange things is called

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people acting in their own self-interest promote the interest of society as a whole

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Adam Smith used the metaphor of the invisible hand to explain how

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people act in their own self-interest

answer

When economists assume that people are rational and respond to incentives, they mean

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If the college increased tuition, will class sizes decline?

answer

Which is not a question answered with normative economic reasoning?

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individuals and firms

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In a modern market, most answers to the questions of how much to produce, how to produce it, and who should get the production are made by

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sacrificing one thing for another

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Tradeoff is

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Where will the products produced be consumed?

answer

Which of the following is not an economic decision in a modern economy?

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How will we produce it?

answer

Deciding if a company will produce automobiles by manual labor or robotics answers the economic question of

question

considered the founder of economics

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Adam Smith is

question

something that can take on different values

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A variable measures

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other variables are held fixed

answer

Ceteris paribus is the Latin expression meaning

question

how a small change in one variable affects another variable

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To think at the margin means to consider

question

the choices made my individual households, firms, and governments

answer

Microeconomics is best described as the study of

question

better understand how markets work, make personal or managerial decisions, and evaluate the merits of public policies

answer

Microeconomic analysis can be used to

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the nation's economy as a whole

answer

Macroeconomics is best described as the study of

question

what you sacrifice to get it

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The opportunity cost of something is

question

is applicable to all decision-making

answer

The principle of opportunity cost

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includes wages you lose by going to school instead of working

answer

The opportunity cost of going to college

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scarcity

answer

The principle of opportunity cost is related to

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long run

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The period of time over which a firm can change all the factors of production is the

question

less than double

answer

According to the principle of diminishing returns, if all factors of production but one are held constant and if that one factor is doubled, then eventually output will most likely

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the principle of opportunity cost

answer

Spending money on a fixed budget is an example of

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the principle of opportunity cost

answer

The saying that: "There is no such thing as a free lunch" refers to

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produces less of another product

answer

If an economy is fully utilizing its resources, it can produce more of one product only if it

question

decrease

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If you remove resources from factory production, the quantity of factory goods will

question

marginal benefit

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The extra benefit resulting from a small increase in an activity is called the

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marginal cost

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The additional cost resulting from a small increase in some activity is called the

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marginal principle

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The principle that individuals and firms pick the activity level where the incremental benefit of that activity equals the incremental cost of that activity is known as the

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principle of voluntary exchange

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When people act in their own self interest, it is described as the

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increases at a decreasing rate

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The principle of diminishing returns implies that as one input increases while the other inputs are held fixed, output

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principle of diminishing returns

answer

The principle that "as one input increases while the other inputs are held fixed, output increases at a decreasing rate" is known as the

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short run

answer

The period of time over which one or more factors of production is fixed is the

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The principle of diminishing returns

answer

A firm produces its product using both capital and labor. When it does not change its capital usage, but doubles its labor input, its output increases by less than 50%. What is the most likely explanation of this?

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increases total output by less than the amount of previous workers

answer

According to the principle of diminishing returns, if the number of workers is increased beyond the point of diminishing returns, then the additional worker

question

only in the short run

answer

The principle of diminishing returns occurs

question

real value

answer

The face value of money or income is called its ______

question

reflects the purchasing power of the sum of money

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The real value of money

question

a firm can build an additional production facility so each worker's share of the facility doesn't necessarily decrease

answer

The principle of diminishing returns doesn't apply to labor in the long run because

question

one of the inputs to the production process is fixed

answer

Diminishing returns occurs because

question

real-nominal principle

answer

The principle that what matters to people is the real value or purchasing power of money is the

question

prices have risen

answer

If real salaries decrease but nominal salaries do not, this means that

question

what to produce, how to produce, and for whom to produce

answer

In modern economies, individuals in markets make most of the decisions about

question

repetition

answer

The more times a worker performs a particular task, the more proficient the worker becomes at that task. This is called

question

continuity

answer

A specialized worker doesn't spend time switching from one task to another. This is called

question

innovation

answer

When a specialized worker gains insights into a particular task that leads to better production methods it is called

question

specialization and free trade will benefit all trading partners

answer

The theory of comparative advantage states that

question

an absolute advantage

answer

The production advantage enjoyed by one country over another when it uses fewer resources to produce a product than another country is

question

exports the goods in which it has a comparative advantage

answer

According to the theory of comparative advantage, a country

question

Country A can produce shoes at a lower opportunity cost than Country B can

answer

Country A has a comparative advantage over Country B in the production of shoes if

question

specialize and export goods with the lowest opportunity cost

answer

According to the theory of comparative advantage a country should

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A comparative advantage

answer

When one country can produce a product at a lower opportunity cost in terms of other goods, that country is said to have

question

contracts, insurance, patents

answer

Markets work better thanks to the invention of

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prices

answer

Under a market economy, decisions are guided by

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prices and profits

answer

Entrepreneurs are driven by

question

polluters may be able to avoid bearing the full cost of their decisions

answer

Pollution is an example of market failure because

question

by protecting private property

answer

How can a government make markets more efficient?

question

absolute advantage

answer

The ability of one person or nation to produce a good at a lower absolute cost than another is called

question

comparative advantage

answer

Trade results from

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poor nation has the comparative advantage in a product

answer

A rich nation will trade with a poor nation because the

question

They erect barriers to trade through and other restrictions

answer

How do governments intervene in international trade?

question

Country A and purchased by residents in Country B

answer

For Country A, an export is a good produced in

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people trade with more confidence and so markets operate efficiently

answer

When the government helps to enforce contracts

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mixed economies

answer

Most economies have what economists call

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state government

answer

In the US, the primary responsibility for paving highways and running colleges and universities rests with

question

the price of the product

answer

A change in the quantity demanded of a product is the result of a change in

question

the price of a good and the quantity of that good that consumers are willing to buy

answer

A demand curve is defined as the relationship between

question

the price of the product falls

answer

The law of demand states that the quantity demanded of a product increases as

question

buy more of a good

answer

The substitution effect of a price change implies that as the price of a good falls, people are like to

question

the price of a good and the quantity that producers are willing to sell

answer

A supply curve is defined as the relationship between

question

firms supply more of a product as the price of the product rises

answer

The law of supply states that

question

the price of pizza will decrease

answer

Suppose that the quantity supplied of pizza exceeds the quantity demanded for pizza. We would expect that

question

as the price of a good falls, people are likely to buy more of all normal goods

answer

The income effect of a price change implies that

question

more;more

answer

Suppose that bananas and apples are normal goods, and that the price of bananas falls. If the income effect outweighs the substitution effect, we would predict that people consume ______ bananas and ________ apples.

question

the substitution effect

answer

Which of the following is best described by the statement: "As the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower"?

question

an excess demand for sugar

answer

If we observe that the price is rising in the sugar market, it is likely due to

question

there is excess demand for product in the market

answer

When consumers are willing to buy more than producers are willing to sell

question

rise;rise

answer

Bananas and apples are substitutes. When the price of bananas rises, the equilibrium quantity of apples will ______ and the equilibrium price of apples will ______

question

rise;rise

answer

Peaches and cream are complements. When the price of peaches falls the equilibrium quantity of cream will ______ and the equilibrium price of cream will _______

question

the price of coffee will increase

answer

In the event of excess demand in the coffee market

question

peanuts are a normal good

answer

Judy demands more peanuts as her income increases. From this, we can conclude that, for Judy

question

inferior

answer

When Mary's income increases, she purchases less hamburger. We can conclude that for Mary, hamburger is a ______ good

question

income increases

answer

A normal good is defined as a good for which demand decreases when

question

the demand for one good decreases when the price of the other decreases

answer

Two goods are substitution if

question

the quantity demanded for apples will decrease

answer

When the price of apples goes up

question

the demand for chicken increases

answer

Assume that chicken and beef are substitutes. When the price of beef increases

question

The quantity of oranges supplied will increase

answer

The price of oranges has risen dramatically. Which of the following is likely to happen

question

the demand for the product increases

answer

Suppose that a product benefits from a successful advertising campaign. The result is that

question

the current demand for the products increases

answer

Suppose that consumers expect that the price of a product will increase in the future. The result is that

question

there will be an excess supply of the product, and the quantity supplied of the product will be greater than the quantity demanded of that product

answer

Suppose that a market for a product is in equilibrium at a price of $5 per unit. At any price above $5 per unit

question

the demand for salsa increases

answer

Assume that tortilla chips and salsa are complements. When the price of tortilla chips decreases

question

income increases

answer

An inferior good is defined as a good for which demand decreases when

question

the supply of beer decreases

answer

If the number of beer producers decreases

question

purchase more at the current price

answer

If consumers have an expectation of a product's price increasing in the near future, they will usually

question

the supply of bread decreases

answer

Flour is used to produce bread. If the price of flour increases

question

the supply of bananas increases

answer

If a technological advance makes it possible to produce bananas at a lower cost

question

supply decreased

answer

If the equilibrium price of a good increases and the equilibrium quantity of the good decreases, we can conclude that

question

demand decreased

answer

If the equilibrium price of a good decreases and the equilibrium quantity of the good decreases, we can conclude that

question

has less to spend, buys in smaller quantities, buys inferior goods

answer

When a consumers income decreases the consumer

question

decreases

answer

When the price of the substitute product decreases, the demand for a substitute product

question

If would increase the supply

answer

If there is an advance in the technology used to produce a product, what is the likely effect it may have on the supply?

question

will decrease

answer

If consumers have an expectation of higher future prices, the quantity of the good that is currently available

Economics Chapters 1-4 Test Questions – Flashcards

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