Economics- Chapter 1 Test

The government of a country must make a decision between increasing military spending and subsidizing wheat farmers. This is an example of?

A guns or butter issue. Economists and politicians use the term "guns or butter" to describe a country's choice of spending money on military or domestic needs.

Which of the following people is an entrepreneur? a. a person who earns a lot of money as a singer or dancer b. a person who creates a game and sells it to a game manufacturer c. a person who starts an all-organic cleaning supplies business that employs others d. a person who works as a highly-paid computer programmer

A person who starts an all-organic cleaning supplies business that employs others

Give an example of an entrepreneur?

An artist who runs a business painting murals. Entrepreneurs are people who decide how to create new goods and services. Anyone who opens a business, such as the artist, is an entrepreneur.

What kinds of goods can be compared on a production possibilities curve?

Any two categories of goods. A production possibilities curve is a graph that shows alternative ways to use an economy's productive resources.

A(n) ______ is a visual way of examining opportunity costs.

Decision Making Grid (What you made for yur plans after high school)

A farm grows corn and alfalfa. What would happen if the farm owner could not get enough workers to plant all the fields?

Efficiency is the use of resources to produce the most goods. If fewer resources are used than are available, they are underutilized and so fewer goods are produced.

Provide an example of thinking at the margin?

Figuring out what you will give up and what you will gain by hiring a new worker. When you decide by thinking at the margin, you look at what you will give up and what you will gain.

The curve usually seen in a production possibilities frontier can be explained by the _______.

Law of Increasing Costs

What physical capital does a woodworker need?

Physical capital refers to human-made items used to make other goods.saws and drills

A factory building is an example of which factor of production?

Physical capital. Human-made objects used to create other goods and services are physical capital.

A graph that shows alternative ways to use an economy's productive resources is a _______.

Production Possibilities Curve

What line on a production possibilities curve shows the amounts of goods produced?

Production possibilities frontier. The production possibilities frontier shows the maximum combination of two types of goods that can be produced using all resources.

Why are goods and services scarce?

Resources used to produce them are limited. Resources to make goods and services are always limited.

To earn the most pay, what is the trade-off?

SKIP

The physical capital used by a woodworker to make furniture would include

Saws and drills. Human-made objects used to create other goods and services are physical capital.

Scarcity requires people to make choices. Why?

Scarcity exists because all resources are limited. There is a limited supply of resources.

A company that makes baseball caps is underutilizing its resources. What does this mean?

The company is producing fewer caps than it could be. Underutilization is the use of fewer resources than an economy is capable of using.

You bought two new CDs with the last $30 in your checking account, and your next payday is on Monday. What is the opportunity cost of these CDs?

The night out with your friends that you miss because you can't afford it now. The most desirable alternative somebody gives up as the result of a decision is the opportunity cost.

What does the economic concept of "guns or butter" mean?

The term guns or butter refers to the government's choice between spending money on military or domestic needs.

Scarcity requires that people make trade-offs because

There are not enough resources to make everything we want. Scarcity exists because all resources are limited.

Giving up one benefit in order to gain a greater benefit is a(n) ______.

Trade-off

When an economy uses fewer production resources than it would at maximum production, it is called _______.

Underutilization

What is the difference between a shortage and scarcity?

Unlike shortages, which are temporary, scarcity always exists.

What is the production possibilities frontier or curve? a. a line that shows how much can be made so resources are best used b. a line that shows how resources can best be used in the future c. a line that shows when resources are underutilized d. a line that shows the only way resources can be used

a line that shows how much can be made so resources are best used

Which is an example of an economic shortage? a. a farmer without enough water for crops b. too many jobs available c. a toy store without dolls d. too much bread on the store shelves

a toy store without dolls

Which of the following is an example of changing physical capital? a. hiring more workers to do a job b. building extra space in a factory c. switching to cheaper fuel d. lowering workers' wages

building extra space in a factory

Which of the following are factors of production? a. capital and land b. scarcity and shortages c. technology and productivity d. economics and business decisions

capital and land

What information is needed to make a decision at the margin?

cost to produce each unit

Which would a company do to increase its human capital?

pay for employees' education. Education increases skills, and therefore increases human capital.

Which of the following is an example of a firm trying to increase its human capital? a. building a company cafeteria b. hiring more part-time workers c. paying for employees' education d. leasing cars for employees

paying for employees' education

What happens when workers are laid off? a. decreased opportunity cost b. underutilization c. increased opportunity cost d. efficiency

underutilization

What happens as production of one item switches to the production of another item? a. The cost of production decreases. b. Land costs rise more than labor costs. c. The cost of production stays the same. d. More resources are needed.

More resources are needed.

The law of increasing costs means that when an economy increases the production of one item, what happens to the opportunity cost?

Opportunity cost goes up. According to the law of increasing costs, as production shifts from making one item to another, more and more resources are necessary to increase production of the second item. Therefore, the opportunity cost increases.

The town of Riverton makes many tires. The town also grows a small amount of strawberries. Strawberries are becoming more popular. Riverton decides to grow more strawberries and make fewer tires. According to the law of increasing costs, what will happen?

The law of increasing costs states that as production shifts from making one good to another, more resources are needed to increase production of the second good. Therefore, the opportunity cost increases. The opportunity cost of growing strawberries will increase.

An efficient economy is one that

Uses its resources to make the most goods and services. An efficient economy uses resources in such a way as to maximize the output of goods and services.