Schlett: Economics: Test Review 01

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When economists say that people act rationally in their self-interest, they mean that individuals
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look for and pursue opportunities to increase their utility (utility means the total satisfaction received from consuming a good or service)
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According to economists, economic self-interest
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is a reality that underlies economic behavior
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Rational behavior suggests that
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individuals will make different choices because their preferences and circumstances differ
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Economics may best be defined as the
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social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants
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The assertion that “There is no free lunch” means that
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all production involves the use of scarce resources and thus the sacrifice of alternative goods
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Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of
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rational behavior
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How does studying economics make you a better citizen?
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economics helps you better understand the world and help you make better choices (note: this is my best answer; there was no answer for this)
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The term “ceteris paribus” means
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other things equal
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The basic purpose of the other-things-equal assumption is to
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allow one to reason about the relationship between variables X and Y without the intrusion of variable Z
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Macroeconomics approaches the study of economics from the viewpoint of
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the entire economy
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When the economist says that economic wants are insatiable, this means that
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these wants are virtually unlimited and therefore incapable of complete satisfaction
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The study of economics exists because
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resources are scarce in relation to economic wants
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The scarcity problem
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persists because economic wants exceed available productive resources
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Land resource
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air, water, land, and raw material; example: silicon (sand) used to make computer chips
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Labor resource
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also known as human capital; the people that do the jobs; example: a computer programmer
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Capital resource
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not money; physical items used in production process of goods and/or services; example: a piece of software used by a firm
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The four factors of production are
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land, labor, capital, and entrepreneurial ability
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Money is not an economic resource because
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money, as such, is not productive
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A production possibilities curve shows
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the maximum amounts of two goods that can be produced assuming the full and efficient use of available resources
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A nation’s production possibilities curve is bowed out from the origin because
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resources are not equally efficient in producing every good
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When an economy is operating with maximum efficiency, the production of more of commodity A will mean the production of less of commodity B because
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resources are limited
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Assume that a change in government policy results in greater production of both consumer goods and investment goods. We can conclude that
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the economy was suffering from unemployment and/or the inefficient use of resources before the policy change
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The production possibilities curve illustrates the basic principle that
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if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced
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What will shift the production possibilities curve to the right (outward)?
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technological advance that allows farmers to produce more output from given inputs
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Unemployment and/or productive inefficiencies
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are both illustrated by a point inside the production possibilities curve
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If the production possibilities curve is a straight line
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economic resources are perfectly shiftable between the production of the two products
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A production possibilities curve illustrates
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scarcity
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Economic resources are also called
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factors of production
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If an economy produces its most valued goods but uses outdated production methods, it is
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not achieving productive efficiency
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Assume an economy is operating at some point on its production possibilities curve, which shows civilian and military goods. If the output of military goods is increased, the output of civilian goods
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must be decreased
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A point inside a production possibilities curve best illustrates
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unemployment
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If an economy is operating on its production possibilities curve for consumer goods and capital goods, this means that
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more consumer goods can only be produced at the cost of fewer capital goods
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In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of
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scarcity and opportunity costs
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What is an economic explanation for why most college-aged movie stars do not attend college
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the opportunity cost in terms of reduced income is too great
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The basic difference between consumer goods and capital goods is that
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consumer goods satisfy wants directly while capital goods satisfy wants indirectly
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What would most likely shift the production possibilities curve to the right?
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an improvement in the literacy level and general level of education
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What would shift an economy’s production possibilities curve to the left?
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a law requiring mandatory retirement from the labor force at age 55 -OR- the depletion of its soil fertility due to overplanting and overgrazing -OR- devastation by war
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Some agricultural sub-Saharan nations of Africa have overfarmed and overgrazed their land to the extent that significant portions of it have turned into desert. This suggests that
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the production possibilities curves of such nations have shifted inward
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Full production means (in terms of unemployment)
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5% unemployment
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Products and services are scarce because
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resources are scarce
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An economy cannot produce at a point outside of its production possibilities curve because
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the production possibilities curve represents the economy at its highest possible efficiency
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Who is considered in the unemployment force?
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The percentage of the total labor force that is unemployed but actively seeking employment and willing to work
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Okun’s Law
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focuses on a relationship between unemployment and GDP, whereby a percentage increase in unemployment causes a 2% fall in GDP
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