Chapter 1: The Challenge of Economics

Ceteris paribus

A Latin phrase that means "all other things held constant." The assumption that nothing else changes.

Which of the following describes central planning?

A government-appointed central planning board Government ownership of most or all property resources

market failure

A situation in which the market mechanism generates suboptimal economic outcomes; an imperfection in the market mechanism that prevents optimal outcomes.

mixed economy

An economy that uses both market and nonmarket signals to allocate goods and resources.

economic growth

An increase in output (real GDP); an expansion of production possibilities.

The president(s) who supported a more active role for the government are:

Bill Clinton Joe Biden Barack Obama

Factories, networks, transportation and distribution facilities, as well as tools and machinery, are all examples of ______ goods. capital entrepreneurship land labor

Capital

investment

Expenditures on (production of) new plant and equipment (capital) in a given time period, plus changes in business inventories.

Government failure occurs when government intervention improves economic outcomes.

False

Decisions related to who is going to consume the goods and services produced is the economic question of ______ to produce.

For whom

Select all choices from the following that would be synonymous with land to an economist. Arable land Factories Forests Oil and mineral deposits Water

Forests Oil and mineral deposits Water Arable land

The president(s) who supported a less active role for the government are:

George W. Bush Donald Trump

Who owns most property resources under central planning?

Government

government failure

Government intervention that fails to improve economic outcomes.

The economic question of '______ to produce' is about decisions related to the mix of factor inputs (land, labor, and capital) used to produce goods and services.

How

____ consists of the physical actions and mental activities that people contribute to the production of goods and services.

Labor

______ consists of the physical actions and mental activities that people contribute to the production of goods and services.

Labor

scarcity

Lack of enough resources to satisfy all desired uses of those resources.

Which of the following includes all natural resources used in the production of goods and services? Labor Entrepreneurship Capital Land

Land

In a market driven economy, which process dominates the decision-making process?

Market mechanism

Each point on the production possibilities curve represents the maximum ______ that can be produced in a given time period with available resources.

Output

Which of the following illustrates the alternative combinations of goods and services that could be produced in a given time period with all available resources and technology?

Production possibilities

Which of the following illustrates the alternative combinations of goods and services that could be produced in a given time period with all available resources and technology? Opportunity cost Scarcity Factors of production The study of economics Production possibilities

Production possibilities

factors of production

Resource inputs used to produce goods and services (e.g., land, labor, capital, and entrepreneurship).

Economics is concerned with how to allocate ________ resources to meet the unlimited wants of the members of a given society.

Scarce

______ makes decisions such as increasing the share of military spending, how many interstate highways to build, and how many Head Start classes to offer.

The Political Process

production possibilities

The alternative combinations of goods and services that could be produced in a given time period with all available resources and technology.

laissez faire

The doctrine of "leave it alone," of nonintervention by government in the market mechanism.

What does each point on a production possibilities curve represent?

The maximum combination of goods that can be produced given available resources

opportunity cost

The most desired goods and services that are forgone in order to obtain something else.

______ makes decisions such as increasing the share of military spending, how many interstate highways to build, and how many Head Start classes to offer.

The political process

macroeconomics

The study of aggregate economic behavior, of the economy as a whole.

economics

The study of how best to allocate scarce resources among competing uses

microeconomics

The study of individual behavior in the economy, of the components of the larger economy.

market mechanism

The use of market prices and sales to signal desired outputs (or resource allocations).

The three main decisions that must be addressed by an economic system do not include:

WHY output is produced

Because wants exceed resources, the economic question of ______ to produce' is related to identifying the goods and services we want most, sacrificing less desired products.

What

The economic question of '______ to produce' is about decisions related to the mix (quantity and type) of goods and services to make available in a given economy.

What

For economists, ______ goods are those goods, such as machines, used to produce final consumer goods and services.

capital

The assumption that nothing else changes is known as

ceteris paribus

An expansion of production possibilities is called

economic growth

The factor of production related to the skill in creating products, services, and processes is known as

entrepreneurship

Decisions related to who is going to consume the goods and services produced is the economic question of '______ to produce.'

for whom

Military spending ______ in the three years after 9/11.

increased

A situation in which the market mechanism gives us a suboptimal economic outcome is known as

market failure

An imperfection in the market mechanism that prevents optimal outcomes is called a:

market failure

Market sales and prices send a signal to producers about what mix of output consumers want. This concept is known as the

market mechanism.

The branch of economics that studies the decision-making process of individual workers, households, and firms (i.e., individual components of the larger economy) is known as:

microeconomics

The 9/11 terrorist attacks on New York City and Washington, D.C. moved the mix of output in the U.S. toward more ______ spending.

military

An economy that uses a combination of government directives and market mechanisms is known as a ______.

mixed economy

A production possibilities curve shows the alternative combination:

of goods and services that could be produced in a given time period with all available resources and technology

In general, one specific mix of output is for a country.

optimal, best, ideal, or good

The concept that "there is no free lunch" reflects the notion that:

scarce resources are used to produce so-called "free goods" that have alternative uses that are given up in order to produce said "free" goods.

The use of market prices and sales to signal desired outputs (or resource allocations) is called: laissez-faire. the market mechanism. government intervention. the "invisible hand."

the "invisible hand." the market mechanism.

On which of the following does the designation of any particular mix of output for a particular society as "best" rest on?

value judgments