Econ Unit 1

Which statement best defines the term economics?

Economics is the study of the production and distribution of goods and services.

Scarcity is not usually a problem in economics.

False

The law of diminishing returns states that as countries produce less of one product and more of another, there is an increase in the resources needed to expand production of the second product.

False

Production possibilities graphs can ONLY show how an economy efficiently uses its resources.

False- the word only limits this. The graphs can show more.

A new Japanese restaurant opens two blocks from your home. The owner, Reiko, is a personal friend of yours. You don't particularly like Japanese food, but you decide to go anyway; however, there is nothing on the menu that sounds appealing. Unfortunately, it turns out that most of the people in your town don't like Japanese cuisine either. Reiko confides that business is not good, but she isn't sure what to do from an economic standpoint. Which of the following would most likely describe Adam Smith's perspective on this problem?

Reiko should add other ethnic foods to the menu and offer discounts to attract more people to her restaurant.

Physical capital is defined as human-made objects such as the sewing machine

True

People must make choices because the amounts of resources. . .

are limited.

What is not an economic right or responsibility?

being happy

What are the three factors of production?

land, labor, and capital

The most attractive trade-off as the result of a decision is called a(n) . . .

opportunity cost.

Which factors of production will cause a decrease in the production of wheat?

poor soil nutrition

What would an economist say motivates a man who builds chairs and sells them to the public?

self-interest

While shopping you discover that your favorite department store has lowered the price on a hot, new MP3 player that you wanted to buy. You rush into the store, only to find that they are sold out. This scenario illustrates the concept of

shortage.

Production possibilities graphs are a good way to. . .

show trade-offs.

Adam Smith is known as the father of economics because he developed a theory that. . .

states that when people act in their own self-interests, it results in an efficient use of resources in a free market.

Any intersection of points inside the line (to the left of the line) on a production possibilities graph would show. . .

that the economy is underutilizing its resources.

Any intersection of points on a production possibilities graph that is outside the frontier (to the right of the line) shows that . . .

the economy is growing due to an increase of resources.

Scarcity and shortage do NOT mean . . .

the same thing.

Using the factors of production to produce one item means . . .

there are fewer resources to use in the production of another.

When someone makes a choice, all the other alternatives that are given up by making that choice are called. . .

trade-offs.