Micro -1: Economics Quiz Answers

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marginal analysis
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comparisons of marginal benefits and marginal costs, usually for decision making
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1 Purposeful (rational) behavior
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the pleasure, happiness, or satisfaction obtained from consuming a good or service. They allocate their time, energy, and money to maximize their satisfaction. Because they weigh costs and benefits, their economic decisions are \”purposeful\” or \”rational,\” not \”random\” or \”chaotic.\”
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2 The scientific method (hypothesis, theories, induction, deduction, etc.)
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based on observations, formulating explanations for cause and effect
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3 Positive and normative statements
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positive statements deal with factual statements like \”what is \” so when ought or should is in the statement it is normative and a judgment..
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4 Capital and capital resources
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5-7, 9 Production possibilities model (curve, assumptions, consumer vs. capital goods, etc.)
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The economy is producing only two goods: pizzas and industrial robots. Pizzas symbolize consumer goods, products that satisfy our wants directly; industrial robots (for example, the kind used to weld automobile frames) symbolize capital goods, products that satisfy our wants indirectly by making possible more efficient production of consumer goods.
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8 The concept of opportunity cost
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To obtain more of one thing, society forgoes the opportunity of getting the next best thing. That sacrifice is the opportunity cost of the choice.
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economics
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The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity.
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economic perspective
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A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions.
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scarcity
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The limits placed on the amounts and types of goods and services available for consumption as the result of there being only limited economic resources from which to produce output; the fundamental economic constraint that creates opportunity costs and that necessitates the use of marginal analysis cost-benefit analysis to make optimal choices.
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opportunity cost
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The amount of other products that must be forgone or sacrificed to produce a unit of a product.
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utility
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The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services.)
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scientific method
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The procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles, and laws.
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other-things-equal assumption
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The assumption that factors other than those being considered are held constant; ceteris paribus assumption.
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economic principle
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A widely accepted generalization about the economic behavior of individuals or institutions.
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Generalizations
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Economic principles are generalizations relating to economic behavior orto the economy itself. Economic principles are expressed as the tendencies of typical or average consumers, workers, or business firms
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microeconomics
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is the part of economics concerned with decision making by individual customers, workers, households, and business firms.
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macroeconomics
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examines the performance and behavior of the economy as a whole. It focuses its attention on economic growth, the business cycle, interest rates, inflation, and the behavior of major economic aggregates such as the government, household, and business sectors
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aggregate
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is a collection of specific economic units treated as if they were one unit.
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positive economics
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focuses on facts and cause-and-effect relationships
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normative economics
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which incorporates value judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal.
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economizing problem
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The choices necessitated because society’s economic wants for goods and services are unlimited but the resources available to
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budget line
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It is a schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income
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economic resources
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meaning all natural, human, and manufactured resources that go into the production of goods and services
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land
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includes all natural resources (\”gifts of includes all natural resources (\”gifts of nature\”) used in the production process. These include forests, mineral and oil deposits, water resources, wind power, sunlight, and arable land.
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labor
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consists of the physical actions and mental activities that people contribute to the production of goods and services.
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capital
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includes all manufactured aids used in producing consumer goods and services. Included are all factory, storage, transportation, and distribution facilities, as well as tools and machinery
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investment
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spending that pays for the production and accumulation of capital goods.
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entrepreneurial ability
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The human resource that combines the other economic resources of land, labor, and capital to produce new products or make innovations in the production of existing products; provided by entrepreneurs.
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entrepreneurs
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Individuals who provide entrepreneurial ability to firms by setting strategy, advancing innovations, and bearing the financial risk if their firms do poorly.
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factors of production
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The four economic resources: land, labor, capital, and entrepreneurial ability.
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consumer goods
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products that satisfy our wants directly
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production possibilities curve
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A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed
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law of increasing opportunity costs
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As the production of a particular good increases, the opportunity cost of producing an additional unit rises.
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economic growth
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An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capital
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Economics is the social science that studies how individuals, institutions, and society make choices under conditions of scarcity.
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True
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From the economic perspective, \”there is no such thing as a free lunch.\”
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True
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The economic perspective views individuals or institutions as making purposeful choices based on the marginal analysis of the costs and benefits of decisions
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True
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The scientific method involves the observation of real-world data, the formulation of hypotheses based on the data, and the testing of those hypotheses to develop theories
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True
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A well-tested or widely accepted economic theory is often called an economic principle or law.
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True
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The other-things-equal assumption (ceteris paribus) is made to simplify the economic analysis.
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True
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The budget line shows all combinations of two products that the consumer can purchase, given money income and the prices of the products.
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True
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A consumer is unable to purchase any of the combinations of two products that lie below (or to the left of) the consumer’s budget line.
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False
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The factors of production are land, labor, capital, and entrepreneurial ability.
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True
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From the economist’s perspective, investment refers to money income.
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False
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Microeconomic analysis is concerned with the performance of the economy as a whole or its major aggregates.
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False
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An increase in the money income of a consumer shifts the budget line to the right
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True
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Given full employment and optimal allocation, it is not possible for an economy capable of producing just two goods to increase its production of both at any one point in time.
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True
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The opportunity cost of producing a good tends to increase as more of it is produced because resources less suitable to its production must be employed.
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Macroeconomic analysis is concerned with the economic activity of specific firms or industries.
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False
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Drawing a production possibilities curve bowed out from the origin is a graphical way of showing the law of increasing opportunity costs
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True
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The economic rationale for the law of increasing opportunity costs is that economic resources are fully adaptable to alternative uses.
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False
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The statement that \”the legal minimum wage should be raised to give working people a decent income\” is an example of a normative statement.
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The opportunity cost of producing more consumer goods is the other goods and services the economy is unable to produce because it has decided to produce these additional consumer goods.
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A person is using positive economics when the person makes value judgments about how the economy should work.
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False
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Optimal allocation is determined by assessing the marginal costs and benefits of the output from the allocation of resources to production.
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True
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Economic growth means an increase in the production of goods and services and is shown by a movement of the production possibilities curve outward and to the right.
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True
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The more capital goods an economy produces today, the greater will be the total output of all goods it can produce in the future, other things being equal.
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The conflict between the unlimited economic wants of individuals or societies and limited economic means and resources of individuals or societies gives rise to the economizing problem.
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True
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International specialization and trade permit an economy to overcome the limits imposed by domestic production possibilities and have the same effect on the economy as having more and better resources.
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True

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