Econ Exam 1 Part one
Which of the following best describes scarcity?
Unlimited wants exceed the limited resources available.
What does increasing marginal opportunity costs mean?
Increasing the production of a good requires larger and larger decreases in the production of another good.
A primary difference between macroeconomics and microeconomics is
Microeconomics examines individual markets while macroeconomics examines the economy as a whole.
What is comparative advantage?
The ability to produce a good or service at a lower opportunity cost than other producers.
What is absolute advantage?
The ability to produce more of a good or service than competitors using the same amount of resources.
What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy?
The country is operating on its production possibilities frontier.
What are the implications of this idea for the shape of the production possibilities frontier?
The production possibilities frontier will be bowed outward.
The federal government should spend more on AIDS research. This represents
a normative analysis
The price of coffee at Starbucks is too high. This represents
a normative analysis
A 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents
a positive analysis
Rising paper prices will increase textbook prices. This represents
a positive analysis
The primary difference between absolute and comparative advantage is
absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.
The grading system used by a teacher can affect the incentives of students to learn the course material by
altering the payoffs to achieving success on the various components of the course.
Societies organize their economies in two main ways to answer the three questions of what, how, and who. A society can have a __________________________________ economy in which the government decides how economic resources will be allocated. Or a society can have a ______________ economy in which the decisions of households and firms interacting in markets allocate economic resources.
centrally planned; market
The basis for trade is ____________ advantage
comparative
If teachers put too much weight in the grading scale on a certain part of the course, like readings outside the textbook, students might respond by....
de-emphasizing other parts of the course.
Scarcity is central to the study of economics because it implies that
every choice involves an opportunity cost.
The production possibilities frontier will shift outward
if resources are used to produce capital goods
Teachers often wish that students came to class prepared having read the upcoming material. A teacher could design the grading system to motivate students to come to class prepared by
increasing the grade weight assigned to being prepared.
Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when
marginal benefit equals marginal cost.
One of the trade-offs Tesla faces is between safety and the maximum range someone can drive an all-electric car before having to recharge it. For example, adding steel to a car makes it safer but also heavier, which results in fewer mileage between recharges. Assume that this trade-off is consistent with increasing costs of added safety. Tesla's production possibilities frontier has a _______________ slope Furthermore, Tesla's production possibilities frontier is....
negative slope bowed outward
Consider a production possibilities frontier that shows the trade-off between the production of cotton (on they-axis) and the production of soybeans (on the x-axis). What effect would improved fertilizers have on the initial production possibilities frontier? If fertilizers improve, then the PPF will This indicates that more ______________ can be produced
shift out along both axes. more of both goods can be produced
A production possibilities frontier:
shows the maximum attainable combinations of two goods that may be produced with available resources.
One of the great benefits of trade is
that it makes it possible for society to become better off by increasing its consumption
In colonial America, the population was spread thinly over a large area, and transportation costs were very high because it was difficult to ship products by road for more than short distances. As a result, most of the free population lived on small farms where they not only grew their own food but also usually made their own clothes and very rarely bought or sold anything for money. Why were the incomes of these farmers likely to rise as transportation costs fell? As transportation costs fell,
the farmers gained access to new markets and customers. Using comparative advantage, the farmersspecialized, producing those goods for which they had lower opportunity cost. As they traded for othergoods, their incomes and living standards increased.
A freelance singer-songwriter is planning the restoration of a recently purchased civil war-era farmhouse. While he professes an enjoyment of, and talent in the construction trades, the theory of comparative advantage implies that
the income lost while away from music will likely exceed the savings realized by doing the work himself, thus, he should hire professionals to do the restoration work.
Is it possible for a country to have a comparative advantage in producing a good without also having an absoluteadvantage? A country without an absolute advantage in producing a good
will have a comparative advantage if it has a lower opportunity cost of producing that good.
We can show economic inefficiency:
with points inside the production possibilities frontier
We can show economic efficiency:
with points on the production possibilities frontier.
Even if you are better at unloading the dishwasher than your spouse, you shouldn't always be the one to unload it because
you may be even better at some other household task and must consider the opportunity cost.