Chapter 3

Section QUiz 1. Which of the following is not a question that all societies must answer? a. How can scarcity be eliminated? b. What goods and services will be produced? c. Who will get the goods and services? d. How will the goods and services be produced? e. All of the above are questions that all societies must answer.

A

command economy

An economic system in which the government uses central planning to coordinate most economic activities

mixed economy

An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.

2. Economic disputes over the distribution of income are generally associated with which economic question? a. Who should produce the goods? b. What goods and services will be produced? c. Who will get the goods and services? d. How will the goods and services be produced?

C

5. The best method of production is a. the capital-intensive method. b. the labor-intensive method. c. the same under all circumstances. d. the lowest cost method.

D

6. When _____________________ is relatively scarce, _____________________ methods of production will be relatively less expensive. a. capital; capital-intensive b. capital; labor-intensive c. labor; capital-intensive d. labor; labor-intensive e. Both (b) and (c) are true.

E

FactorMarkets

Factor or input markets are where households sell the use of their inputs (capital, land, labor, and entrepreneurship) to firms

List some countries with a command economy q

North Korea and Cuba

ProductMarkets

Product markets are the markets for consumer goods and services. In the product market, households are buyers and firms are sellers. Households buy the goods and services that firms produce and sell. The payments from the househol

Which of the following is the most accurate statement about a production possibilities curve? a. An economy can produce at any point inside or outside its production possibilities curve. b. An economy can produce only on its production possibilities curve. c. An economy can produce at any point on or inside its production possibilities curve, but not outside the curve. d. An economy can produce at any point inside its production possibilities curve, but not on or outside the curve.

c

market economy

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

simple circular flow model

an illustration of the continuous flow of goods, services, inputs, and payments between firms and households

A point beyond the boundary of an economy's production possibilities curve is a. efficient. b. inefficient. c. attainable. d. unattainable. e. both attainable and efficient.

b

Consider a production possibilities curve for an economy producing bicycles and video game players. It is possible to increase the production of bicycles without sacrificing video game players if a. the production possibilities curve shifts outward due to technological progress. b. the production possibilities curve shifts outward due to increased immigration (which enlarges the labor force). c. the economy moves from a point inside the production possibilities curve to a point on the curve. d. any of the above occurs. e. either (a) or (b), but not (c), occurs

b

Which of the following is consistent with the implications of the production possibilities curve? a. If the resources in an economy are being used efficiently, scarcity will not be a problem. b. If the resources in an economy are being used efficiently, more of one good can be produced only if less of another good is produced. c. Producing more of any one good will require smaller and smaller sacrifices of other goods as more of that good is being produced in an economy. d. An economy will automatically attain that level of output at which all of its resources are fully employed. e. Both (b) and (c) are consistent with the implications of the production possibilities curve.

b

In the circular flow model, a. firms supply both products and resources. b. firms demand both products and resources. c. firms demand resources and supply products. d. firms supply resources and demand products.

c

Suppose Country A produces few consumption goods and many investment goods while Country B produces few investment goods and many consumption goods. Other things being equal, you would expect a. per capita income to grow more rapidly in Country B. b. population to grow faster in Country B. c. the production possibilities curve for Country A to shift out more rapidly than that of Country B. d. that if both countries started with identical production possibilities curves, in 20 years, people in Country B will be able to produce more consumer goods than people in Country A can. e. that both (c) and (d) are true.

c

7. Which statement(s) is/are true about the law of increasing opportunity cost? a. Some resources and skills cannot be easily adapted from their current uses to alternative uses. b. The more you produce of one good, the more you are forced to employ inputs that are relatively more suitable for producing other goods. c. Resources tend to be specialized so we lose some of their productivity when we transfer those resources from producing what they are relatively good at to producing something at which they are relatively bad. d. All of the above are true.

d

In a circular flow diagram, a. goods and services flow in a clockwise direction. b. goods and services flow in a counterclockwise direction. c. product markets appear at the top of the diagram. d. factor markets appear at the left of the diagram. e. both (b) and (c) are true.

d

The circular flow model a. traces the flow of goods and services among firms and households. b. traces the flow of payments among firms and households. c. includes both product markets and factor markets. d. All of the above are true.

d

Which of the following is most likely to shift the production possibilities curve outward? a. an increase in unemployment b. a decrease in the stock of physical or human capital c. a decrease in the labor force d. a technological advance

d

A _____________________ production possibilities curve illustrates _____________________ costs of production. a. straight-line; constant b. straight-line; increasing c. bowed-outward; constant d. bowed-outward; increasing e. Both (a) and (d) are true.

e

A virulent disease spreads throughout the population of an economy, causing death and disability. This event can be portrayed as a. a movement from a point on the production possibilities curve to a point inside the curve. b. a movement from a point on the production possibilities curve to the northeast. c. a movement along the production possibilities curve to the southeast. d. an outward shift of the production possibilities curve. e. an inward shift of the production possibilities curve.

e

What determines the position and shape of a society's production possibilities curve? a. the physical resources of that society b. the skills of the workforce c. the level of technology of the society d. the number of factories available to the society e. all of the above

e

Which of the following is true? a. In the product markets, firms are buyers and households are sellers. b. In the factor markets, firms are sellers and households are buyers. c. Firms receive money payments from households for capital, land, labor, and entrepreneurship. d. All of the above are true. e. None of the above is true.

e

capital intensive

production that uses a large amount of capital

labor intensive

production that uses a large amount of labor

production possibilities curve

the potential total output combinations of any two goods for an economy given the available factors of production and the available production technology that firms use to turn their inputs into outputs

consumer sovereignty

the power of consumers to decide what gets produced