Fundamentals Review Microeconomics

Economists use the phrase _____ to refer to the positive gains enjoyed by both buyers and sellers when they trade.

"trade creates wealth"

Which of the following help measure the quality of a good economic model?

How well it reflects reality Whether it gives us insights that can be used in the real world

_____ cost is most plainly visible when spending more money on one thing means that less money can be spent on another thing.

Opportunity

_________ is/are also called factors of production since they are transformed into output during the production process.

Resouces

Economics is the study of how individuals and societies allocate___ resources among many competing uses. (Use one word for the blank.)

Scarce

means that resources are limited.

Scarce

A production possibilities frontier that illustrates a 1-for-1 trade off between goods is drawn as:

a straight, downward-sloping line.

Individuals and businesses must choose between the different uses for their available resources. This is called ______ resources and is due to the concept of ______.

allocating; scarcity

Comparative advantage refers to:

being the lowest relative opportunity cost producer of a good.

A model that concisely describes how goods, services, resources, and money flow back and forth in an economy is the:

circular flow model.

If you are relatively better at something, then you are said to have a(n) _____ advantage in that activity.

comparative

Gains from trade can be measured by:

comparing the levels of consumption available before and after the trade.

The simple model of production assumes that the opportunity cost of production is:

constant

When resources are allocated in such a way that it is possible to increase the production of one good only by decreasing the production of another, then the allocation of resources is said to be _______ . (Enter one word in the blank).

efficient, optimal, optimum, optimized, or eficiency

When resources are allocated in such a way that it is possible to increase the production of one good only by decreasing the production of another, then the allocation of resources is:

efficient.

Graphing the information in the production possibilities schedule produces the production possibilities:

frontier

The two parties involved in the simple circular flow model are:

household and business

n the real world, the opportunity cost of production ___ as production increases. (Enter only one word in the blank.)

increases

As the amount of an activity increases, its marginal cost:

increases.

When resources are allocated in such a way that it is possible to increase the production of one good without decreasing the production of another, then the allocation of resources is:

inefficient.

Resources are also called:

inputs because they are transformed into output in the production process.

Evaluate the following statement: "I love ice cream. But I've eaten so much ice cream today, I can't possible eat another cup." Multiple choice question.

marginal benefit falls

When you decide - after studying for three hours - that another hour of sleep is more beneficial to you than a fourth hour of studying, you are engaging in:

marginal decision making.

The value of the next-best forgone alternative is known as _____ the cost. (Enter one word in the blank.)

opportunity

Individuals and countries specialize because of differences in:

opportunity costs

The terms of trade that are beneficial to both parties are prices that lie between both the parties' ______.

opportunity costs

As long as there are differences_____ in costs, there are comparative advantages and there will be potential for trade to make both parties better off.

opportunity or opportunty

Combinations of production that fall inside the production possibilities frontier are___ but not efficient.

possible, attainable, achievable, or feasible

In the circular flow model, the two markets are the resource market and the:

product market

A graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology is the:

production possibilities frontier.

The production possibilities frontier, or curve, is a graphical representation of the

production possibilities schedule.

Self-interest, marginal decision making, and optimization form the basis for:

rational decision making.

According to the circular flow diagram, households and firms interact in the ______ and the ______.

resource market; product market

Because the world is characterized by scarcity, people must allocate the limited ____ at their disposal among many competing uses.

resources or resource

Economics is the study of how individuals and societies allocate ____ resources among many competing uses. (Use one word for the blank.)

scarce

Economics is the study of how individuals and societies allocate:

scarce resources among many competing users.

Due to the ______ of natural resources, we cannot have all the housing and all the forests we may want. (Use one word for the blank.)

scarcity

A strong economic model allows us to analyze the economic events of the world by:

simplifying a very complex economic world.

In the real world, the opportunity cost increases as production increases, because:

some resources are better suited for producing some goods or services than others.

Because of differences in opportunity costs, individuals and businesses

specialize in the production of the good for which they wield a comparative advantage.

Opportunity cost is:

the value of the opportunity that you give up when you choose one activity instead of another.

Individuals and countries specialize because the opportunity cost of producing goods and services:

varies