Economics Unit 1 Review Test Questions – Flashcards
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What are the three factors of production?
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land, labor, capital
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Which of the following is a benefit that a business is likely to attain from purchasing new equipment?
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increased productivity
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Why are entrepreneurs important to the economy?
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they are willing to take risks
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A sales clerk represents which factor of production?
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labor
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Why is there scarcity even in an affluent country like the US?
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resources are limited but wants are unlimited
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What are the economists referring to when they say "choosing is refusing"?
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opportunity cost
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Because of scarcity, every decision involves a
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trade off
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A basketball coach is performing a cost/benefit analysis in order to determining if more hours of practice would help the team score more points. The coach's action is an example of
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marginal cost
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The best alternative that is given up when a decision is made is the
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opportunity cost
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In 1991, for a short time, Iraq invaded Kuwait and seized its oil fields. During that time, what impact, if any, did the invasion have on Iraq's production possibility frontier?
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shifted to the right
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A country has two main products: hats and grapes. The country decides to start making more and more hates and fewer and fewer grapes. Why does the opportunity cost of making hats increase as more and more hats are produced?
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the best resources for producing grapes are least suites to making hats
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Which of the following courses of actions makes the MOST sense in today's world for manual laborers who have been replaced by robots?
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seek training in the latest technology related to a type of work they enjoy
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Which of the following causes a production possibilities frontier to shift to the right?
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the economy grows
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A point ON a production possibilities frontier represents
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a point which an economy is using all resources most productively
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What are the three basic economic questions all societies must answer?
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what goods and services should be produces, how should they be produced, and who will consume them?
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The distribution of income in the form of rent, wages, or interest is the main factor that determines?
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who consumes goods and services
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An economy that maximizes its scarce resources and can deliver the right goods in the right quantity to the right people at the right price has achieved which economic goal?
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efficiency
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How does innovation promote economic growth?
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by introducing new goods and services that create new markets
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Which basic economic goal is most easily achieved in a traditional economy?
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equity
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Which of the following describes the benefits of specialization in a free market?
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specialization leads to efficient use of capital, land, and labor
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How do self-interest and competition affect free markets?
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they work together to regulate supply, demand, and prices
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Which of the following is an explanation of what Adam Smith called the "invisible hand" of the marketplace?
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self interest, competition, and incentives promote smoothly running markets
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Key advantages of free market economic systems include?
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economic efficiency, economic freedom, economic growth, and variety of goods
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In a free market system, the concept of consumer sovereignty means that
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consumers have the power to decide what goods get produced
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Which of the following is typical of a centrally planned economy?
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government control
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Which of the following represents a difference between socialism and communism?
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socialism may allow some free market practices, communism doesn't
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What distinguishes an authoritarian government from a democratic one?
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it requires strict obedience from its citizens
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How were the Soviet Union and communist China similar?
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both suffered from severe economic problems as a result of central planning
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What is a disadvantage of central planning?
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lack of economic efficiency
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Which is an example of why the US government makes transfer payments?
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to support retired people
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A government hiring freeze would directly impact what aspect of the circular flow model of a mixed economy?
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factor market
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Government involvement in a modern economy is generally defended because?
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governments are more able than firms to meet some needs and wants of society
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Which of these is an example of restrictions that government places on the use of business property?
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zoning laws
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Private property ownership and some government regulation of the economy are basic characteristics of which economic system?
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mixed economy
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The profit motive drives business owners to
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make sure their firm is operating at its highest level of efficiency
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An entrepreneur can BEST be characterized as someone who
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takes risks in order to acquire profits
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The due process clauses of the Constitution
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protect americans private property rights
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Which of the following BEST illustrates the involvement of the US government in the marketplace today?
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the government requires manufacturers to issue warnings that come with new microwave ovens
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What is the main economic benefit of public disclosure laws?
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they ensure that consumers can make informed decisions
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Which of the following of these might indicate that the national economy is stable?
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prices for groceries and other daily needs stay about the same from year to year
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How is gross domestic product used to monitor the business cycle?
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gdp indicates whether the nation's economy is expanding or contracting
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How do patents act as an incentive to technological innovation?
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by protecting a patent holder's right to profit from his or her creativity
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Which concept provides the economic reason for nations to specialize in what they produce?
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scarcity
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Absolute advantage is based on the ability to produce a good with
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the greatest efficiency
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How do producers identify a good in which they have a comparative advantage?
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it is a good in which a producer has the lowest opportunity cost compared to other producers
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Which of the following goods should a country import?
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a raw material that costs less to import than to extract
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What effect would expansion of Japanese auto production probably have on US auto production?
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a loss of jobs due to increased supply
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Why is a single currency beneficial for trade purposes?
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it allows nations to trade without using an exchange rate
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What problems are likely to be caused by privatization of business?
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displacement of workers
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What change did Mikhail Gorbachev make to the Soviet Union's economy?
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he incorporated elements of free market economy within a communist structure
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What change led China to huge economic growth?
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adopting free market policies
