Ch1 - The Core Issues

Government intervention may achieve a more optimal outcome than the market mechanism when addressing

Consumption of cigarettes.

The curve that best represents a production possibilities curve for two goods for which there are constant opportunity costs is

One that has a constant negative slope.

A point on a nation's production possibilities curve represents

The full employment of resources to achieve a particular combination of goods and services.

Adam Smith's invisible hand is now called

The market mechanism.

In a production possibilities curve for two goods, combinations of goods that fall on the curve

are attainable, are efficiently produced, utilize all of an economy's resources.

The factors of production include

land, labor, capital, entrepreneurship

The branch of economics that studies the economy as a whole or in the aggregate is known as

macroeconomics

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

market failure

The economic question of '______ to produce' is about decisions related to the mix of factor inputs used to produce goods and services.

how

The law of increasing opportunity costs states that as production of a particular good _____, the opportunity cost of producing an additional unit of the good _____.

increases, increases

For economists, ____ goods are goods that are used to produce final consumer goods and services.

intermediate

Each point on the production possibilities curve represents some alternative ____ of two or more products.

output combination

A ____ economic analysis concerns what is, whereas a ____ economic analysis represents subjective statements about what ought to be.

positive, normative

Combinations of output that fall inside the production possibilities curve of an economy represent

the inefficient use of resources, goods that are attainable

______ resources are those for which the quantity desired exceeds the quantity available.

scarce

_____ refers to the gap between limited resources and unlimited wants.

scarcity

Macroeconomics focuses on the behavior of

The overall economy.

What is true about the combination of production about represented by a point outside of the production possibilities curve?

The point can possibly be reached if more economic resources become available or technology improves.

The fundamental problem of economics is

The scarcity of resources relative to human wants.

Which of the following is an assumption under which the production possibilities curve is drawn?

The supply of resources is fixed.

The market mechanism may best be defined as

The use of market prices and sales to signal desired output.

A mixed economy

Utilizes both market and nonmarket signals to allocate goods and services.

The opportunity cost of producing at one point rather than another point can be found by asking yourself what question?

What am I giving up from the other point in order to produce at this point?

Opportunity cost is

What is given up in order to get something else.

The market mechanism

Works because prices serve as a means of communication between consumers and producers.

Efficiency in production is achieved at which location on the production possibilities curve?

Any point along the curve itself.

In terms of the production possibilities curve, inefficiency is represented by

All points inside the curve.

Refer to the World View article titled "North Korea's Food Shortage Grows." If North Korea reduces the size of its military and produces more food, this is most consistent with

A movement along the economy's production possibilities curve.

If a point moves along the production possibilities curve from one spot to another, this movement results in

A reallocation of resources from the production of x to the production of y, or vice versa.

If an economy experiences constant opportunity costs with respect to two goods, then the production possibilities curve between the two goods will be?

A straight, downward-sloping line.

The role of the entrepreneur in an economy is to

Bring the factors of production together and assume the risk of production.

According to the law of increasing opportunity costs,

Greater production of one good requires increasingly larger sacrifices of other goods.

Economics can be defined as the study of

How scarce resources are allocated.

According to the law of increasing opportunity costs,

In order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods.

If the United States decides to convert automobile factories to tank production, as it did during World War II, but finds that some auto manufacturing facilities are not well suited to tank production, then

Increasing opportunity costs will occur with greater tank production.

Match the factor of production with the correct example. Land, labor, capital, entrepreneurship. A forest, a person who uses resources in innovative ways, a computer, a steel worker.

Land: a forest Labor: a steel worker Capital: a computer Entrepreneurship: a person who uses resources in innovative ways

The doctrine of laissez faire is based on the belief that

Markets are likely to do a better job of allocating resources than government directives.

With respect to factors of production, which of the following statements is not true? -Factors of production are also known as resources. -In order to produce any good or service, it is necessary to have factors of production. -Factors of production include land, labor, capital, and entrepreneurship. -Only those resources that are privately owned are counted as factors of production.

Only those resources that are privately owned are counted as factors of production.

Given that resources are scarce,

Opportunity costs are experienced whenever choices are made.

The Latin phrase ceteris paribus means

Other things remain equal.

Which of the following define ceteris paribus?

Other-things-equal. The idea that factors other than those being considered in a particular analysis do not change.

Factors of production are

Scarce in every society.

The highest opportunity cost anywhere in production combinations for one product in terms of another can be found by

Seeing where the largest proportional difference is between production outcomes for the other product.

Economic growth would best be represented by a

Shift outward of the production possibilities curve.

Which of the following is not a basic decision that all nations must confront? -Should we have economic growth? -How should we produce goods and services? -For whom should goods and services be produced? -What goods and services should we produce?

Should we have economic growth?

The benefit of producing at one point rather than another point on the production possibilities curve is

The difference between the previous point's and the new point's axis values (ex. KL units of clothing).

Which of the following is true when an economy is producing efficiently?

The economy is producing on the production possibilities curve.

When the relationship between two variables changes,

The entire curve shifts.

Which of the following resources would be considered to be land by an economist? factories, arable land, water, oil and mineral deposits, forests

everything but factories

The study of microeconomic theory focuses on

individual behavior in the economy

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

what