Econ Test 1

Inflation is defined as

An increase in the overall level of prices in the economy.

Microeconomics is the study of

How individual households and firms make decisions

The " invisible hand" directs economic activity through

prices

Mike and sandy are two woodworkers who both make tables and chairs. in one month, mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Given this, we know that the opportunity cost of 1 chair is

1/5 tables for mike and 1/3 tables for Sandy.

Trade

Allows specialization, which reduces costs

The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. this extra benefit society gets from vaccinated citizens is known as

An externality

Economists use the word equality to describe a situation in which

Each member of society has the same income

Central planning refers to

Government guiding economic activity. today many countries that had this system have abandoned it.

The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good.

Has an absolute advantage in the production of that good

Economics is the study of

How society manages its scarce resources

The historical rise in living standards of American workers is primarily a result of

the rise in american productivity

Suppose a gardener produces both green beans and corn in her garden. if she must give up 14 bushels of corn to get 5 bushels of green bean. then her opportunity cost of 1 bushel of green beans is

2.8 bushels of corn

Normative conclusions

Involve value judgments

Suppose Jim and tom can both produce two goods: baseball bats and hockey sticks. which of the following is not possible?

Jim has a comparative advantage in the production of baseball bats and in the production of hockey sticks

The term used to describe a situation in which markets do not allocate resources efficiently is

Market failure

When a single person (or small group) has the ability to influence market prices, there is

Market power

If the United States decides to trade with Mexico, we know that

Mexico and the United States can both benefit.

The field of economics is traditionally divided into two broad sub fields

Microeconomics and macroeconomics

Comparative advantage is related most closely to which of the following?

Opportunity cost

The adage, "there is no such thing as a free lunch." means

People face tradeoffs

According to a recent study of Chilean bus drivers, drivers who are paid by the number of passengers they transport have higher productivity than drivers who are paid by the hour. this result is an example of which principle of economics?

People respond to incentives

When the government redistributes income from the wealthy to the poor

People work less and produce fewer goods and services

Normative statements are

Prescriptive, whereas positive statements are descriptive

The overriding reason why households and societies face many decisions is that

Resources are scarce

Production possibilities frontiers are usually bowed outward. This is because

Resources are specialized; that is, some are better at producing particular goods rather than other goods.

When calculating the cost of college, which of the following should you probably not include?

The cost of rent for you off-campus apartment

Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is

The enjoyment she would have received had she watched the video

Canada and the U.S both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if

The opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S

A production possibilities frontier is bowed outward when

The rate of trade between the two goods being produced depends on how much of each good is being produced.

The marginal benefit Claire gets from purchasing a third pair of flip flops is

The total benefits Claire gets from purchasing three pairs of flip-flops minus the total benefit she gets from purchasing two pairs of flip-flops

When an economy is operating inside its production possibilities frontier, we know that

There are unused resources or inefficiencies in the economy

Which of the following is not an assumption of the productions possibilities frontier?

There is a fixed quantity of money

A production possibilities frontier can shift outward if

There is a technological improvement

If an economy is producing efficiently, then

There is no way to produce more of one good without producing less of another good

Suppose there are only two people in the world. each person's production possibilities frontier also represents his or her consumption possibilities when

They choose not to trade with one another

Factors of production are

Used to produce goods and services

The opportunity cost of an item is

What you give up to get that item

Regan grows flowers and makes ceramic vases. Jayson also grows flowers and makes ceramic vases but Regan is better at producing both goods. in this case, trade could

benefit both Jayson and Regan

When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy

rises

The production possibilities frontier is used to illustrate some basic economic ideas, including

scarcity, opportunity cost and economic growth

Efficiency means that

society is getting the maximum benefits from its scarce resources

In most societies, resources are allocated by

the combined actions of millions of households and firms