Econ 202 Chap. 1 & 2
If the quantity desired of something exceeds the amount available at zero price, that item is called
an economic good.
A production possibilities curve will shift outward or to the right for all of the following reasons EXCEPT
an increase in the unemployment rate.
Economic growth is shown by
an outward shift of the production possibilities curve.
Economic models
are used to explain how people behave.
Division of labor refers to
assigning different workers to different tasks.
Which of the following is a TRUE statement?
All economic goods are goods, but not all goods are economic goods
Carlos is an executive of a major corporation. Boris is a baker. Carlos earns a salary ten times as large as the salary Boris earns, and Carlos has a much larger oven for baking break. Carlos can make a loaf of bread that tastes better than Boris's bread but Boris can bake faster.
Carlos has an absolute but not comparative advantage over Boris in making bread.
Tiger Woods, a professional golfer, pays a garage mechanic to change the motor oil of his car even though he can do the work himself. Which of the following best explains why Tiger Woods does NOT change the oil himself?
The opportunity cost of changing oil is higher for Tiger Woods than for the garage mechanic.
According to economic theory, how do people make decisions?
They make decisions based on their own self-interest.
A friend says, "I really, really need a new car." As an economist, you're thinking
This is an example of how objectively undefinable needs are. Many would argue that this friend could get along just fine with a reliable used car.
"No individual should have less than $20,000 income in the United States in 2017" is an example of
a normative statement
"If the United States enters a war with Canada, U.S. export prices will go up." This statement is an example of
a positive statement
Which of the following is a behavioral implication of bounded rationality?
a rule of thumb
Which of the following will most likely happen when better technology is used in production?
an outward shift of the production possibilities curve
Capital goods
are goods used to make consumer goods and services.
Matt and Ann both decide to go to a concert with free tickets. We know that
both bear an opportunity cost since they could have done other things instead of see the concert.
Which of the following describes that people cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them?
bounded rationality
A relationship between two variables in which one variable increases at the same time that the other increases is called
direct
Suppose that at a bicycle shop, instead of having each worker assemble an entire bicycle themselves, one person welds the frames, another person works on the braking system, another person works on the tires, and another person works on the gears. This best demonstrates the concept of
division of labor.
All mutually beneficial trades have taken place. This implies that
economic efficiency prevails in the society.
Macroeconomics deals with ________ while microeconomics deals with ________.
economywide choices; choices of individuals
Scarcity
exists in all human societies
When two countries specialize in the production of different goods and trade with each other, it is most likely each country will
export the goods in which it has a comparative advantage.
In economics, resources are also known as
factors of production.
It is correct to state that a society which is on its production possibilities curve is
fully utilizing its productive resources.
Which of the following is NOT an economic good?
garbage
Economic goods are
goods that are scarce, for which the quantity demanded exceeds the quantity supplied at a zero price.
A bowed production possibilities curve is consistent with
highly specialized resources.
Because resources are scarce relative to wants, the study of economics concerns
how individuals, businesses, and governments make choices.
The potential rewards that are available to an individual if a particular activity is undertaken are known as
incentives
The above table shows the daily production possibilities for a nation. According to the above table, the opportunity cost of each additional portable device in terms of televisions
increases as more computers are produced.
Under a pure price system, the decision of resource allocation is made by
individuals who own the resources.
Normative economics
involves value judgments.
Opportunity cost
is always the value of the next best forgone opportunity.
A production point that lies outside the Production Possibilities Curve (PPC)
is currently not attainable.
When a country specializes and trades with other countries, it is most likely that it specializes in goods for which
it has a comparative advantage.
Division of labor
leads to an increase in the amount of output in the economy.
In economic analysis, people's resources are
limited and their wants are unlimited
Economics can be described as the study of how people use ________ resources to satisfy ________ wants.
limited; unlimited
People behave rationally when they
make decisions they think will make themselves better off.
Economic theory predicts that people make choices in a manner that
makes them better off.
What is the type of mechanism that answers the basic economic questions through a decentralized decision making process?
market system
A technological improvement can cause the production possibilities curve to shift outward because
maximum feasible outputs of both goods increase.
A simplified representation of the real world that is used to explain economic phenomena is a(n)
model
Because models are used to explain economic behavior
models can be either simple or complex so long as it explains economic behavior.
All of the following are economic resources, or factors of production EXCEPT
money
The saying that "You cannot have your cake and eat it too" illustrates the economic concept of
opportunity cost
The ceteris paribus assumption means
other things are equal.
The term ceteris paribus is an economic assumption that means
other things being equal.
The production possibilities curve (PPC) illustrates economic growth by a(n)
outward shift of the PPC
A tractor used to prepare land for planting is called
physical capital.
When people donate money to a charity, they behave
rationally if the act gives them satisfaction.
A negative slope
represents an inverse relationship, such as beers consumed and test score.
The law of increasing additional cost occurs when
resources are not perfectly adaptable for alternative uses.
The concept of opportunity cost exists because
resources are scarce.
The most basic concept of economics is
scarcity
If economists are making the assumption that business people try to maximize profits, the best way to determine whether this assumption is useful or not is to
see whether it generates accurate predictions about the choices of business people.
Microeconomics is defined as that part of economic analysis that
studies individual decision making by households and firms.
Refer to the above figure. If the farmer is growing 8,000 bushels of beans and 8,000 bushels of wheat, then we know that
the farmer is not using resources efficiently.
The more society consumes today
the less society can consume in the future.
A straight-line production possibilities curve takes this shape because
the opportunity cost of producing a good is constant.
Which of the following would likely be considered as a topic of microeconomics?
the price of apples
If opportunity costs are constant, then
the production possibilities curve is a negatively sloped straight line.
A direct relationship occurs when
the two variables being compared change in the same direction, or when one goes up the other also goes up.
People always face trade-offs because
they always have more than one use for their time and money.
Scarcity is caused by
unlimited wants running up against limited economic resources.
A politician says that the government should tax behavior they want less of and subsidize behavior they want more of. This is an example of
using incentives to alter behavior.
Specialization can occur because
varying skills differentiate workers.
Which of the following is a TRUE statement about the economic assumption of rationality?
Individuals generally act as though they are rational
Which of the following is always TRUE of rational behavior?
It always entails pursuing one's own best interest.
Why is efficiency desirable?
It makes best use of the available resources.
At a zero price, which of the following conditions is TRUE for an economic good?
Its quantity demanded exceeds its quantity supplied.
Jose and Maria work at a restaurant. Jose can make either 10 pancakes or 4 waffles; Maria can make either 8 pancakes or 2 waffles. According to this scenario
Maria has the comparative advantage in making pancakes.
Which of the following is a TRUE statement?
Opportunity cost is always a foregone opportunity.
Which one of the following is an example of a normative statement?
Public school teachers are not paid enough.
Which of the following would provide an incentive to increase the amount of beef consumed?
a decrease in the price of beef
Which of the following is NOT a service?
a diamond used in an engagement ring
An inverse relationship will be graphed as
a line that is downward sloping.
The impact of an increase in the gasoline tax on sales of electric vehicles is
a microeconomics topic because it deals with one industry
The difference between positive statements and normative statements is that
a positive statement is a statement of fact and a normative statement involves value judgments.
Positive analysis can be described as
a value-free approach to inquiry.
Which of the following is NOT considered to be an economic resource?
a view of the moon on a clear night
Macroeconomics
aggregate economic variables.
Modern economists are increasingly using microeconomic analysis in macroeconomics because
aggregate outcomes stem from decisions made by individuals, business firms and government.
Which of the following statements is a positive economic statement?
The President's budget included an increase in unemployment insurance payments.
________ are the things that are used to produce items that satisfy people's wants.
Resources
Which of the following statements about scarcity is TRUE?
Scarcity exists in all societies.
Given a linear curve, the value on the y-axis changes from 120 to 100 when the value on the x-axis changes from 10 to 20, then the slope of that curve is
-2
Which one of the following is an example of a normative statement?
A vacation in Colorado is better than a vacation in Hawaii.
Which of the following statements about economic scarcity is FALSE?
Scarcity only occurs if there are shortages and people wait in line to buy things.
Which of the following is an example of a normative economic statement?
Income tax rates should be lower because that will increase government revenue.
Which of the following is TRUE of incentives?
Different people are motivated by different incentives.
Which of the following statements is FALSE?
Economic models are not used to make predictions.
Which statement most accurately describes economics?
Economics is the study of how people make choices to satisfy their wants.
Which of the following statements about economic models is TRUE?
Every economic model is based on a set of assumptions.
Which one of the following is an example of a normative statement?
Every student in college should have a smart phone.
Which of the following are considered factors of production?
I. Land II. Labor III. Physical capital IV. Entrepreneurship
Which of the following is NOT an assumption used in deriving a production possibilities curve?
The labor force is growing at a constant rate.
If all resources were perfectly adaptable for alternative uses, the production possibilities curve would
be a straight line.
Why is it that all of our wants cannot be satisfied?
because limited resources mean all the goods we want cannot be obtained
A positive economic statement is one that
can be refuted.
Mary says she plans to return to college next semester assuming her car keeps running, tuition fees don't go up, and she will still have a student loan. An economist would say that Mary plans to return to college next semester
ceteris paribus.
Which of the following would most likely NOT be taught in a microeconomics course?
changes in unemployment across the nation
Which of the following sets of terms describes the problem of scarcity in economics?
choices, opportunity costs, and trade-offs
All of the following are examples of physical capital EXCEPT
company stocks and bonds
When a country or a region of a country specializes in producing the product that has the lower opportunity cost compared to another country or region, it is practicing
comparative advantage.
"The U.S. government should not use my tax dollars to subsidize people on welfare"
is a normative economic statement because it involves a value judgment about an economic policy.
Trading off capital goods for increasing amounts of consumer goods today will most likely result in
decreased long-term growth.
A poll conducted by a national firm finds that most Americans say they care more about safety when buying a car than about fuel efficiency. As a result, a car maker produces a car with many safety features, but it doesn't sell well. This behavior
does not contradict economic theory because economists focus on what people do rather than on what they say.
Economics deals with
how individuals allocate scarce resources to satisfy unlimited human wants
Economic analysis is used
in all decision making.
The above table shows the daily production possibilities for a nation. Given the production possibilities schedule in the above table, a combination of 60 televisions and 40 portable devices
is attainable but involves an inefficient use of society's resources.
A decision made by a rational person
is intended to make the person better off.
When we say that an individual behaves according to "rational self-interest," we mean that this individual
is making choices that he or she believes will leave him or her better off.
Positive economics
is objective
The rationality assumption says that
people do not intentionally make decisions that would leave them worse off.
Physical capital is distinguished from human capital because
physical capital refers to equipment and machinery, whereas human capital refers to trained people.
Analysis that is limited to making either purely descriptive statements or scientific predictions is
positive economics
The slope of a nonlinear curve is ________ when the curve is rising, and ________ when the curve is falling.
positive, negative
To be useful, a model must
predict more accurately than other models that have been developed.
In a market system, ________ provide signals about whether resources are relatively scarce or abundant.
prices
If a country wants to promote future growth, it should
produce more capital goods today.
Economics seeks to use only positive analysis to
provide a value-free analysis.
Rational self-interest means
pursuing what makes you better off
Technology is best defined as
society's stock of applied knowledge concerning the production of goods and services.
Behavioral economics is an approach to the study of consumer behavior
that emphasizes psychological limitations and complications that potentially interfere with rational decision making.
A macroeconomist would most likely study
the effects of a lower income tax rates on the nation's total production of goods and services
Opportunity cost is
the value of the next-best alternative that must be sacrificed to satisfy a want.
With specialization
there are greater gains in material well being.
Scarcity exists because
there are not enough resources available to produce all the goods that people want.
The President's statement that "to encourage economic growth, taxes should be cut"
would be an example of a normative statement.
When the text refers to rational self-interest, it means
your looking out for what is best for you as an individual
