Chapter 2 & Chapter 1 Review

requiring strict obedience to a state or leader

authoritarian

an economy in which the government answers the key economic questions

centrally planned economy

another name for a centrally planned economy

command economy

a political system with a centrally planned economy that owns all resources and means of production

communism

The fact that consumers have the power to decide what gets produced is called _______.

consumer sovereignty

Deciding by thinking at the margin is called _______.

cost/benefit analysis

The arena of exchange where firms purchase factors of production is called the _______.

factor market

the income people receive for supplying factors of production

factor payment

resources that are used to make goods and services

factors of production

All goods and services are scarce because a. some goods cost more than others. b. resources are limited. c. things are either needs or wants. d. greedy people want too many goods.

b. resources are limited.

the extra benefit of adding one unit

marginal benefit

a system to protect people experiencing unfavorable economic conditions

safety net

the level of economic prosperity

standard of living

What is the difference between a shortage and a scarcity? a. A shortage can be temporary or long-term, but scarcity always exists. b. A shortage results from rising prices; scarcity results from falling prices. c. A shortage is a lack of all goods and services; scarcity concerns a single item. d. There is no real difference between a shortage and a scarcity

a. A shortage can be temporary or long-term, but scarcity always exists.

How did heavy industry in the Soviet Union avoid the competition that drives a free market economy? a. The government discouraged competition by determining prices, wages, and products. b. The government used profit as an incentive to entrepreneurs. c. Farms were not in direct competition with heavy industry. d. The government banned the production of consumer goods

a. The government discouraged competition by determining prices, wages, and products.

How will consumers react to the incentive of a higher price on a good or service? a. The negative incentive will cause consumers to purchase less of the good or service. b. The positive incentive will cause consumers to purchase less of the good or service. c. The negative incentive will cause consumers to purchase more of the good or service. d. The positive incentive will cause consumers to purchase more of the good or service.

a. The negative incentive will cause consumers to purchase less of the good or service.

The government of a country must make a decision between increasing military spending and subsidizing wheat farmers. This is an example of a. a guns or butter issue. b. decision-making at the margin. c. underutilization of resources. d. the law of increasing costs.

a. a guns or butter issue.

A person who believes that wealth should be evenly distributed throughout society is a. a socialist. b. a communist. c. a capitalist. d. an entrepreneur.

a. a socialist.

Which of the following are factors of production? a. capital and land b. scarcity and shortages c. technology and productivity d. economics and business decisions

a. capital and land

An economy that is producing the maximum amount of goods and services is considered a. efficient. b. underutilized. c. growing. d. trading off.

a. efficient.

Increasing the number of laborers in an economy generally causes a(n) a. increase in the production possibilities curve. b. decrease in the production possibilities curve. c. increase in the opportunity cost of production. d. decrease in the opportunity cost of production.

a. increase in the production possibilities curve.

Each society answers the three basic economic questions based on a. its unique combination of values and goals. b. the number of factor payments. c. its degree of economic growth. d. the desire to achieve economic freedom

a. its unique combination of values and goals.

Which of the following might be a positive aspect of centrally planned economies? a. low unemployment due to guaranteed jobs b. high levels of consumer satisfaction c. quick adjustment to changing conditions d. incentives for workers to be innovative

a. low unemployment due to guaranteed jobs

Which of the following is the main incentive for a manufacturer to sell a product? a. making profits on sales b. putting others out of business c. pleasing the consumer d. helping the economy grow

a. making profits on sales

The law of increasing costs means that when an economy increases the production of one item the a. opportunity cost goes up. b. actual cost of making the item goes down. c. actual cost goes up but the opportunity cost goes down. d. production costs will increase also.

a. opportunity cost goes up.

The line on a production possibilities curve showing the relative amounts of two types of goods produced using all resources is called the a. production possibilities frontier. b. opportunity cost line. c. utilization of resources. d. maximum possible production line.

a. production possibilities frontier.

The physical capital used by a woodworker to make furniture would include a. saws and drills. b. trees and oil. c. hard work and time. d. a workshop and money

a. saws and drills.

A socialist society has a more flexible command economy than a communist society because a. some free market practices can combine with central economic planning. b. the central government has all economic and political power. c. an authoritarian government controls the economy. d. the centers of economic power are all under private control

a. some free market practices can combine with central economic planning.

Which of the following is the kind of decision that can be made at the margin? a. whether or not to hire new workers b. whether or not to go on a vacation c. whether or not to build an extra room on a home d. whether to have a dog or a cat as a pet

a. whether or not to hire new workers

Which of the following philosophers argued that a free market would regulate itself with little government involvement? a. Karl Marx b. Adam Smith c. Vladimir Lenin d. Friedrich Engels

b. Adam Smith

Why are free market economies able to attain economic growth? a. Consumers can purchase all the goods they need, which causes firms to produce more. b. Competition encourages innovation, which causes growth. c. Everyone is acting in their own self-interest, which motivates market growth. d. Firms keep producing incentives to encourage households to purchase more goods.

b. Competition encourages innovation, which causes growth.

What does the expression "the customer is king" mean in a free market economy? a. In a service economy, the customer is always right. b. Customers have the power to decide what gets produced. c. People with the most money are treated like royalty. d. Producers of goods are also customers.

b. Customers have the power to decide what gets produced.

The ways in which factors of production are combined determines the answer to which economic question? a. What will be produced? b. How will goods be produced? c. Who will consume goods? d. How can we provide a safety net?

b. How will goods be produced?

What does the process of specialization do for an economy? a. It eliminates unemployment. b. It makes production more efficient. c. It fosters competition. d. It makes labor easier to control.

b. It makes production more efficient.

How is the economic system in China today different from the one in Soviet Russia? a. The Chinese government owns firms in major industries. b. The Chinese government allows far more economic freedom. c. The Chinese government is socialist, rather than communist. d. The Chinese government is not authoritarian.

b. The Chinese government allows far more economic freedom.

Which of the following is characteristic of a centrally planned economy? a. The central government enforces laissez-faire policies. b. The central government makes all economic decisions. c. The central government lets factories set their own goals. d. The central government allows the market to set wages for jobs.

b. The central government makes all economic decisions.

In which of the following lists of mixed economies does the free market system dominate? a. France, Canada, South Africa, United Kingdom b. United States, United Kingdom, Singapore, Hong Kong c. Cuba, Greece, China, United States d. Russia, Peru, France, Canada

b. United States, United Kingdom, Singapore, Hong Kong

Which of the following is an example of using physical capital to save time and money? a. hiring more workers to do a job b. building extra space in a factory to simplify production c. switching from oil to coal to make production cheaper d. lowering workers' wages to increase profits

b. building extra space in a factory to simplify production

Every decision involves trade-offs because a. everyone has to make decisions. b. everyone's resources are limited. c. some people have more money than others. d. some decisions are made for business, others for society.

b. everyone's resources are limited.

To improve its standard of living, a nation's economy must a. remain stable. b. grow through innovation. c. reach economic equity. d. allow the central government to make economic decisions.

b. grow through innovation.

Who owns the factors of production? a. individuals b. households c. firms d. the market

b. households

If you choose between two summer jobs, the one you do not choose is the ______ of your decision. a. trade-off b. opportunity cost c. decision at the margin d. opportunity at the margin

b. opportunity cost

A factory building is an example of which factor of production? a. human capital b. physical capital c. land d. labor

b. physical capital

Making a decision at the margin is possible only in situations where a. the available opportunity costs are unclear or complicated. b. the available alternatives can be divided into increments. c. there are more than three different types of alternatives to consider. d. there are differences in the amount of time each alternative will consume.

b. the available alternatives can be divided into increments.

Human capital includes a. the salary paid to an accountant. b. the knowledge a taxi driver has of the city streets. c. the machinery run by a seamstress to weave cloth. d. the equipment used by a doctor to cure a patient.

b. the knowledge a taxi driver has of the city streets.

The community of Desertville traditionally produces a large number of tires and a small amount of kiwi fruit. Kiwis are becoming increasingly popular, and Desertville has decided to expand kiwi cultivation and decrease tire manufacturing. According to the law of increasing costs, a. the opportunity cost of producing tires will increase. b. the opportunity cost of producing kiwis will increase. c. the opportunity cost of producing tires will decrease. d. the opportunity cost of producing kiwis will decrease.

b. the opportunity cost of producing kiwis will increase.

Scarcity requires that people make trade-offs because a. people have more wants than needs. b. there is a limited supply of resources. c. services are more available than goods. d. producers rarely make enough of a good.

b. there is a limited supply of resources.

Which of the following might a government provide as part of a safety net for the people? a. general elections every four years b. unemployment compensation c. a strong military defense d. regulation of commerce

b. unemployment compensation

Which of the following is an example of a shortage? a. Water cannot be used to irrigate one crop because it is used for another. b. Kumquats are not available because few people want to buy them. c. A type of doll is not available because a limited number were made. d. Workers are not available because they have other jobs.

c. A type of doll is not available because a limited number were made.

The main difference between the economies of China and North Korea is that a. North Korea does not have a centrally-planned economy. b. North Korea has begun to introduce free market practices. c. China is privatizing state-run businesses. d. China does not allow ownership of private property.

c. China is privatizing state-run businesses.

Why do people need to buy and sell products or services? a. People need to buy and sell products to make a profit. b. We need to maintain a competitive society. c. No one is self-sufficient. d. People need to provide the market with goods and services.

c. No one is self-sufficient.

What might be a hardship for citizens of a centrally planned economy making a transition to a free market economy? a. Farmers would have to grow the crops that the government instructed them to. b. Only poor quality goods would become available to consumers. c. Workers would lose job security and guaranteed incomes. d. Entrepreneurs would have fewer opportunities to start new businesses.

c. Workers would lose job security and guaranteed incomes.

The economic concept of guns or butter means that a. a person can spend money on either sports equipment or food. b. a company must decide whether to manufacture guns or butter. c. a government must decide to produce more or less military or consumer goods. d. a government can buy unlimited military and civilian goods if it is rich enough.

c. a government must decide to produce more or less military or consumer goods.

A region's production possibilities curve might show underutilization of resources if the region experienced a. tax increases. b. an influx of immigrant labor. c. a large flood. d. growth of its industries.

c. a large flood.

Which of the following people is an entrepreneur? a. a person who earns a lot of money as a singer or dancer b. a person who creates a game and sells it to a game manufacturer c. a person who starts an all-organic cleaning supplies business that employs others d. a person who works as a highly-paid computer programmer

c. a person who starts an all-organic cleaning supplies business that employs others

In what kind of an economy does the government make all the decisions? a. mixed b. laissez-faire c. centrally planned d. free enterprise

c. centrally planned

What two systems were linked in the Soviet Union and China? a. the free market and capitalism b. socialism and democracy c. communism and central planning d. traditional economy and authoritarianism

c. communism and central planning

Government intervention in a modern economy is useful because a. the needs and wants of a modern society are always met by the marketplace. b. the marketplace has many incentives to create public works such as parks. c. governments are more able to meet some needs and wants of modern society. d. free market principles do not encourage growth.

c. governments are more able to meet some needs and wants of modern society.

What can a decision-making grid do? a. tell you the right decision to make b. show you every possible consequence of your decision c. help you determine some of the opportunity costs for your decision d. show you every possible benefit of your decision

c. help you determine some of the opportunity costs for your decision

How could the Chinese economy be characterized? a. free market b. centrally planned c. mixed, but more centrally planned d. mixed, but more like a free market

c. mixed, but more centrally planned

The law of increasing costs means that as production shifts from one item to another, a. the cost of production gets cheaper and cheaper. b. the cost of producing an item stays the same no matter how many are produced. c. more and more resources are necessary to increase production of the second item. d. the land costs of increasing production rise much more steeply than do the labor costs.

c. more and more resources are necessary to increase production of the second item.

Which of the following is an example of a firm trying to increase its human capital? a. building a company cafeteria b. hiring more part-time workers c. paying for employees' education d. leasing cars for employees

c. paying for employees' education

The United States government intervenes in the economy in order to a. provide competition for private firms. b. impose barriers on foreign trade. c. promote the general welfare. d. protect laissez-faire

c. promote the general welfare.

A nation's automakers install new robotic machinery to build cars. As a result, cars take only a day to make, and the factories can produce many more cars than before. This is an example of growth caused by a. natural resources. b. labor. c. technology. d. production possibility curves.

c. technology.

You bought two new CDs with the last $30 in your checking account, and your next payday is on Monday. What is the opportunity cost of these CDs? a. the difference between the cost to produce the CDs and the price you paid for them b. the $30 check that you wrote for the CDs c. the night out with your friends that you miss because you can't afford it now d. the satisfaction of knowing you are the first of your friends to have these CDs

c. the night out with your friends that you miss because you can't afford it now

An economy in which all the boys become farmers when they are adults, just as their fathers and grandfathers did, would be an example of a a. free market economy b. command economy c. traditional economy d. centrally planned economy

c. traditional economy

An efficient economy is one that a. creates new resources through ongoing research and development. b. conserves its resources through underutilization. c. uses its resources to make the most goods and services. d. does not face the problem of scarcity.

c. uses its resources to make the most goods and services.

any human-made resource that is used to produce other goods and services

capital

What is one of the most important advantages of a free market? a. It distributes goods equally. b. It protects the less fortunate. c. It is easy to regulate. d. It encourages growth.

d. It encourages growth.

Which of the following is a characteristic of a traditional economy? a. It encourages innovation and change. b. It is usually based on light industrial production. c. It has a high standard of living. d. It revolves around the family unit.

d. It revolves around the family unit.

A company that makes baseball caps is underutilizing its resources. What does this mean? a. The company is running more efficiently than its competitors. b. The company is paying its employees less than it should be. c. The company is making caps when it could be making t-shirts instead. d. The company is producing fewer caps than it could be.

d. The company is producing fewer caps than it could be.

Why might the Soviet planners have favored heavy industry over the makers of consumer goods? a. The products of heavy industry brought in more money. b. There were more people trained to work in heavy industry. c. Consumer goods are not good economic investments. d. The products of heavy industry provide material for many other industries.

d. The products of heavy industry provide material for many other industries.

Which of the following is a summary of the three key economic questions? a. Who will buy which goods and services, and how much will they pay? b. How, when, and from whom should comsumers get what they want? c. When, where, and by whom should goods and services be produced? d. What goods and services should be produced, how, and for whom?

d. What goods and services should be produced, how, and for whom?

One example of an entrepreneur is a. a writer who is hired by a film studio to adapt a novel into a screenplay. b. a secretary in a law firm that specializes in business law. c. an ice skater who is part of a professional ice show. d. an artist who runs a business painting murals in office buildings and restaurants.

d. an artist who runs a business painting murals in office buildings and restaurants.

A production possibilities curve shows the relationship between the production of a. farm goods and factory goods. b. two types of farm goods. c. two types of factory goods. d. any two categories of goods.

d. any two categories of goods.

The United States economy is a mixed economy a. based on a traditional economy, but allowing some government intervention. b. based on a centrally planned economy, but limiting government intervention. c. based on a free market, allowing no government intervention. d. based on a free market, but allowing some government intervention.

d. based on a free market, but allowing some government intervention.

What "invisible hand" regulates the free market economy? a. incentive and efficiency b. specialization c. competition between firms d. competition and self-interest

d. competition and self-interest

A decision is made at the margin when each alternative considers a. a different trade-off than the others. b. where the most costly alternative will be. c. what the "all or nothing" alternative will be. d. cost and benefit ranked in progressive units.

d. cost and benefit ranked in progressive units.

A town votes to raise taxes on its households and businesses in order to renovate a school in one of its poorest neighborhoods. What societal goal best explains this decision? a. freedom b. efficiency c. growth d. equity

d. equity

Which of the following lists of factors of production would an economist categorize as land? a. factories, office buildings, assembly lines, workers b. farm fields, tractors, pesticides, fertilizers c. dams, bridges, rock quarries, oil wells d. iron ore, natural gas, fertile soil, water

d. iron ore, natural gas, fertile soil, water

Which of the following best describes the economy of the United States? a. free market b. centrally planned c. mixed, but more centrally planned d. mixed, but more like a free market

d. mixed, but more like a free market

Traditional economies are usually a. small, close communities that welcome change and new technology. b. large, widespread communities that welcome change and new technology. c. large, widespread communities that are able to deal effectively with environmental disaster. d. small, close communities that avoid change and new technology.

d. small, close communities that avoid change and new technology.

What is the product market? a. the market in which income is received for supplying land, labor, or capital b. the market in which governments collect taxes from firms and consumers c. the market in which firms purchase the factors of production from households d. the market in which households purchase the goods and services that firms produce

d. the market in which households purchase the goods and services that firms produce

When a theater owner considers whether to install another row of seating, she is a. underutilizing her resources. b. experiencing a shortage. c. using human capital. d. thinking at the margin.

d. thinking at the margin.

A(n) ______ is a visual way of examining opportunity costs.

decision-making grid

a major goal of socialist economies

economic equity

the method used by a society to produce and distribute goods and services

economic system

period of change in which an economy moves from one economic system to another

economic transition

the study of how people make decisions to satisfy their needs and wants

economics

The use of resources to maximize the output of goods and services is _______

efficiency

use of resources in such a way as to maximize the output of goods and services

efficiency

person who decides how to combine resources to create goods and services

entrepreneur

an economic system in which private individuals or corporations own capital goods

free enterprise system

physical objects that someone produces such as baseballs or umbrellas

goods

knowledge gained from education and experience

human capital

The hope of reward that encourages a person to behave in a certain way is a(n) _______.

incentives

the process of bringing new methods, products, or ideas into use

innovation

the effort that a person devotes to a task for which the person is paid

labor

the doctrine that government generally should not intervene in the marketplace

laissez-faire

all natural resources used to produce goods and services

land

The curve usually seen in a production possibilities frontier can be explained by the _______.

law of increasing costs

The extra cost of adding one unit is the ______.

marginal cost

the extra cost of adding one unit

marginal cost

An arrangement that allows buyers and sellers to exchange things is a(n) _______.

market

a market-based economic system with some government involvement

mixed economy

something essential for survival

need

The most desirable alternative given up as a result of a decision is the ______.

opportunity cost

the most desirable alternative given up as the result of a decision

opportunity cost

property owned by individuals or companies

private property

the selling of state-run firms, which are then allowed to compete in the marketplace

privatization

A graph that shows alternative ways to use an economy's productive resources is a _______.

production possibilities curve

When a country's maximum possible output is plotted on a graph, it is called the _______.

production possibilities frontier

principle that limited amounts of goods and services are available to meet unlimited wants

scarcity

An individual's own personal gain is _______.

self-interest

actions or activities that one person performs for another

service

when consumers want more of a good or service than producers are willing to offer at a particular price

shortage

a political system based on the belief that wealth should be evenly distributed throughout a society

socialism

Giving up one benefit in order to gain a greater benefit is a(n) ______.

trade off

an economy that relies on habit, custom, or ritual to answer economic questions

traditional economy

When an economy uses fewer production resources than it would at maximum production, it is called _______.

underutilization

use of fewer resources than an economy is capable of using

underutilization

something people desire that is not necessary for survival

want