Chapter 1-3 Text Problems

All of the following are assumptions underlying the production possibilities curve

-resources are fully employed -production takes place over a specific time period -the resource inputs are fixed over the time period

Which of the following statements is true

-A production possibilities curve illustrates the concept of opportunity cost -A production possibilities curve illustrates the concept of scarcity -A linear production possibilities curve illustrates the concept of efficiency

Micro or Macro National Unemployment rate Decision to work overtime or not The rate of growth of the supply of money National Government's budget deficit Family's choice of having a baby

-Macro -Micro -Macro -Macro -Micro

A higher minimum wage will reduce employment opportunities for minimum wage workers Increasing the earnings of minimum wage employees is desirable, and raising the minimum wage is the best way to accomplish this. Everyone should enjoy open access to healthcare Healthcare subsidies will increase the consumption of health care

-Positive economics -Normative economics -Normative economics -Positive economics

A rational, self-interested student decides whether to purchase a textbook required for a particular class based on

-The price of the textbook -Whether he can borrow the textbook from his friends -his limited resources, such as income and time

The common element of the nation's answers to those key economic questions has been

A centralized authority assuming responsibility for addressing them

The economic system in which a government establishes ownership of resources and issues rules for how to manage the production of products is best described as

A command and control system

A politician states "taxes should be raised to provide more spending on school lunch programs." This is

A normative economic statement

An increase in the price of gasoline will reduce the amount of gasoline purchased this is

A positive economic statement

dependent variable

A variable whose value changes according to changed in the value of one or more independent variables

independent variable

A variable whose value is determined independently of, or outside, the equation under study

which on the follow is a true statement about self-interest as used in the study of economics

Any action can be based on self-interest if the person has some reason for the action

The two opposing sets of answers are offered by alternative economy​ systems:

Command and control and the price system

For every 10 exam points Myrna must earn in order to pass her economics course and meet her graduation requirements, she will study one additional hour for her economics test next week

Based on the rationality assumption

which of the following are factors of production

Entrepreneurship land human capital

For a nation that only produces two goods, the maximum amounts of each of those goods that can be produced are represented by points on a production possibilities curve that are half-way between the vertical and horizontal axes

False

whenever we use productive resources to make capital goods, we are automatically increasing current consumption

False

Many state governments claim a shortage of funds because there are​ "unmet needs." This claim is

False because of scarcity

To which of the following household-type(s) does the phrase "unlimited wants and limited resources" apply? I. A low-income household II. A middle-income household III. A high-income household

I,II,III Every household regardless of income, faces the conflict between limited resources and unlimited wants and hence the need to make choices.

Microeconomics is the part of economic analysis that studies decision making undertaken by . Macroeconomics is the part of the economic analysis that studies the behavior of .

Individuals and firms the economy as a whole

entrepreneurship is the component of Human Resources that performs the functions of organizing, managing, and assembling the other factors of production to create and operate business ventures

TRUE

Economics is the study of how people allocate their resources in an attempt to satisfy their wants.

Limited;unlimited

Suppose that the U.S federal government has borrowed $500 billion to expand its total spending on goods and services across the entire economy in the effort to boost by $500 billion the aggregate production by the nation's firms. Would we apply microeconomics or macroeconomics to this policy action?

Macro because it would effect the economy as a whole

Suppose that the government has raised by $10 a per-carat tax rate it imposes on diamonds in an effort to influence production of this particular good by each of the firms that produce it and purchases by individual consumers. Would er apply microeconomics or macroeconomics?

Micro because this would affect decision making undertaken by individuals and by firms

Some people claim that the "economic way of thinking" does not apply to issues such as health care. What demonstrates how economics applies to this issue

The individual allocates his limited resources among all the desired goods such as food, shelter, health care, etc. The individual puts an enormously high value on being in good health The individual has limited resources such as income and time

In evaluating the price that an individual will be willing to pay for a given quantity of a particular type of health care service, a researcher assumes that the person considers relevant health care options in pursuit of his own long-term satisfaction with resulting health outcomes

The rationality assumption

The notion that people do not intentionally make decisions that would leave them worse off is known as

The rationality assumption

Economics is

The study of how limited resources are allocated to satisfy unlimited wants

The three key economic questions that have been addressed in this nation are

What and how many items to produce, how scarce resources are used in producing items, and who can obtain the items produced

People may appear to use rules of​ thumb, as suggested by the assumption of bounded​ rationality, even though they may really be behaving in a manner suggested by the rationality assumption if

They face persistently predictable range of choices for a period of time

The ultimate purpose of economics is

To study how individuals make choices

Economics is a science since the study of economics uses models and theories that are subject to empirical testing

True

Does the richest person in the world face the problem of​ scarcity?

Yes, because even if you have money you will never be able to satisfy all of your wants and must therefore make choices

One of your classmates, Sally, is a hardworking student, serious about her classes, and conscientious about her grades. Sally is also involved, however, in volunteer activities and an extracurricular sport. Is Sally displaying rational behavior?

Yes, she is using her time allocated among school, studying, sports and volunteer work in a manner she deems best

The economic way of thinking will

allow you to make better decisions

the division of labor increases the output of society by

allowing resources to specialize in the tasks for which they have comparative advantage

The economic way of thinking is best described as

an analytical framework enabling one to reach informed conclusions.

Positive economics statements . and normative economic statements

are concerned with "what is" are concerned with "what ought to be"

Economics

assumes individuals are rational and respond to different incentives

It is relatively easy for an author to keep all normative statements out of a textbook

false

On a graph that shows the trade-off between the production of two goods, the trade-offs occur outside the production possibilities curve.

false

The concept of self interest assumes that individuals can only further their goals at the expense of other individuals

false

comparative advantage is the ability to produce a good or service at a higher opportunity cost compared to other producers

false

On a horizontal number line, the numbers . and on a vertical number line, the numbers .

increase left to right increase as we move up the line

Any activity that results in the conversion of resources into products that can be used in consumption is called

production

Each individual must make choices because

resources are limited and therefore cannot satisfy​ one's many competing wants.

A point inside the PPC means that

resources are not being fully utilized due to unemployment or inefficiency.

Scarcity

results from unlimited wants coupled with limited resources

The division of productive activities among persons and regions so that no one individual or region is totally self-sufficient is known as

specialization

The rationality assumption as used in economics

states that people respond to incentives.

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

absolute advantage

the ability to produce more of a given product using a given amount of resources

Greater economic growth is shown as

the distance the production possibilities curve shifts outward.

Why do economists avoid making the distinction between wants and needs.

the term is subjective making it hard to distinguish between something someone wants and something they need

When an individual proclaims the need for a new car, the person typically means

they want something they currently do not have

A model is considered "good" if it yields usable predictions that are supported by real-world observations

true

An economy is productively efficient whenever it is producing the maximum output with given technology and resources

true

Much of human behavior can be explained in terms of how individuals respond to changing incentives over time

true

The bounded rationality hypothesis assumes people are not fully rational and therefore use simple rules of thumb to sort among the alternatives that happen to occur to them

true

The economic system in which individuals and families own all of the scarce resources used in production, decide how and what to produce, and how many products to produce, is best described as a price system

true

The rationality assumption of economics is the assumption that people do not intentionally make decisions that would leave them worse off

true

The relationship between two variables is inverse when a decrease in one variable is associated with an increase in the other variables

true

absolute advantage refers to the ability to produce more units of a good or service using a given quantity of labor or resource inputs

true

the law of increasing additional cost shows that the opportunity cost of additional units of a good generally increases as people attempt to produce more units of that good

true

Economics is a social science that involves the study of how individuals choose among alternatives to satisfy their . Which is what people would buy if their income were .

wants; unlimited

an economy's production is efficient

whenever it is operating on its production possibilities curve

Ceteris Paribus means

"other things constant"

what is the difference between absolute advantage and comparative advantage

Absolute advantage is when someone can produce more of a good using a given quantity of inputs while comparative advantage is when someone can produce a good at a lower opportunity cost

Increased demand for laptop computer will drive up their price Falling gasoline prices will result in additional vacation travel A reduction of income tax rates will result in more people working

An improvement in the computer manufacturing technology The economy enters a recession with increased unemployment The foreign exchange value of the dollar increases causing domestic exports to decline

_______goods are goods that will later be used to produce consumer goods

Capital

The production possibilities curve will shift outward(upward, and, or, to the right) when

Economic growth occurs

On a coordinate number system, the vertical number line is known as the x axis and the horizontal number line is known as the y axis

FALSE

Scarcity is the same as a shortage.

FALSE

economic models relate to the way people think rather than to the way people act

FALSE

Suppose an employer is trying to decide whether or not to hire another worker. Which is NOT an aspect of the economic way of thinking that would apply in this decision-making process

Flipping a coin

Recently, a bank was trying to decide what fee to charge for​ "expedited ​payments"long dash— payments that the bank would transmit extra speedily to enable customers to avoid late fees on cable TV​ bills, electric​ bills, and the like. To try to determine what fee customers were willing to pay for expedited​ payments, the bank conducted a survey. It was able to determine that many of the people surveyed already paid fees for services that exceeded the maximum fees that they said they were willing to pay. This illustrates that

It is important to focus on what rational individuals actually do rather than what they say they will do

factors of production

Land, labor, and capital; the three groups of resources that are used to make all goods and services

Until 2008, the people of the fictitious nation or For relied mainly on private car companies to determine how many automobiles to produce. After 2008, the people of For have been relying on the Dor government to determine how many automobiles to produce. This represents a shift in the economic system of For from

Market system to central planning

economics involves people's values and typically uses the word should

Normative

"we ought to do more for the education of our children" statements using words light ought or should are

Normative statements

A coin toss will best predict Leonardo's decision about whether to purchase an expensive business suit or an inexpensive casual outfit to wear next week when he interviews for a high-paying job he is seeking.

Not based on the rationality assumption

The assumption of bounded rationality that people might use rules of thumb to guide their decision making because

People can not examine every possible choice available to them

economics is value free and relates to statements that can be refuted, such as "If A, then B

Positive

A production possibilities curve that is bowed outward(from the origin) represents the concept that

Production of additional units of one good requires that increasing quantities of the other good to be given up

What is the relationship between wants and resources

Resources are used to produce things that satisfy people's wants

An economic model

Should capture only the essential relationships that are sufficient to analyze a particular problem or answer a particular question

which of the following is a positive statement

The Fed has cut the key interest rate several times this year.

To determine the amount of time that a person will decide to devote to watching online videos each week, an economist makes the assumption that the individual will feel overwhelmed by the sheer volume of videos available online and will respond by using a rule of thumb

The assumption of bounded rationality

Rationality Assumption

The assumption that people do not intentionally make decisions that would leave them worse off.

Rational, self-interested government officials seeking more funding for mass transit through higher taxes should consider

The fact that raising taxes is generally unpopular and may result in a potential loss in a future election

Whenever a society forgoes current consumption in order to invest in capital​ goods,

The more the society can consume in the future

Proponents of behavioral economics suggest that traditional economic models assume that people exhibit all of the following "unrealistic" characteristics

Unbounded willpower unbounded rationality unbounded selfishness

Which of the following is NOT one of the three fundamental questions

Where will the items be produced

You are investing your resources in a college education because

Your personal PPC will grow faster by investing in human capital and you will be better off

The hypothesis that people are nearly, but not fully, rational, so that they 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 is known as

bounded rationality

The law of increasing additional cost is represented by a _____production possibilities curve

bowed out

Each country has a unique economic system to allocate its scarce resources. However, the economic system of most of the world's nations are a combination of the system and the system

central planning price

the productivity gains achieved by specialization are due to

comparative advantage

A society's institutional mechanism for determining the way in which scarce resources are used to satisfy human desires refers to its

economic system

Decisions must frequently be made by​ individuals, organizations, and even nations. Facilitating better​ decision-making is a fundamental goal of economics. The analytical framework advocated by economists that enables one to make informed decisions is called

economic way of thinking

The three functional economic questions that a nation addresses in order to allocate society's scarce resources are

for whom will the items by produced How will the items be produced what and how much will be produced

economic goods are

goods that are scarce

Danny goes to a military academy to become a soldier. This is an example of

investment in human capital

Based on the recommendation of a friend, you buy a ticket and attend a movie with high expectations. After seeing the movie, you think that is the worst film ever made and that it was a complete waste of money. This situation

is consistent with rational behavior because you thought you were going to like the movie

If economic growth occurs in a nation, this is represented by

its production possibilities curve moving outward.

in determining how to allocate your time,

only comparative advantage, but not absolute advantage, matters.

The ceteris paribus assumption means

other things equal

The existence of scarcity requires

that people must make choices and face​ trade-offs in using their resources.

To make predictions about how many apps a person will download onto her tablet device, an economist presumes that the individual faces limitations that make it impossible for her to examine every possible choice among relevant apps.

the assumption of bounded rationality

An economic model is developed from a set of assumptions about consumer behavior and predicts that people will buy less of a good the higher the price of the good. Empirical testing of this model would involve

the collection of the data to evaluate the usefulness of the model

The greater the amount of productive resources we use to produce capital goods today,

the more growth we will experience in the future

Opportunity cost is best defined as_____alternative(s) that must be sacrificed to obtain something or to satisfy a want

the next best

A professor with a Ph.D in Economics can write a short essay in economics in 2 hours and can mow the lawn in 4 hours. A student in economics can write a short essay in economics in 4 hours and can mow the lawn in 4.5 hours. Which of the following is true

the professor should write the essay since he has the comparative advantage in writing

the division of labor refers to

workers being assigned specific tasks

economic growth implies

you can now have more of all goods.