Chapter 1: The Challenge of Economics

of goods and services that could be produced in a given time period with all available resources and technology

A production possibilities curve shows the alternative combination:

Market failure

A situation in which the market mechanism gives us a suboptimal economic outcome is known as

incentive

A(n) ______ problem is created when people who work hard to bake a pie feel cheated as non-workers get just as large a slice.

mixed economy

An economy which uses a combination of government directives and market mechanisms is known as a(n) _______.

economic growth

An expansion of production possibilities is called

market failure

An imperfection in the market mechanism that prevents optimal outcomes is called a:

economic growth

An increase in output (real GDP) is called

1 room

Assume that it takes four hours of labor time to paint a room and four hours to sand a floor. If a decision were made to spend your time sanding one floor, how many painted rooms would have been foregone?

2 rooms

Assume that it takes four hours of labor time to paint a room and four hours to sand a floor. If a decision were made to spend your time sanding two floors, how many painted rooms would have been foregone?

0.5 rooms

Assume that it takes six hours of labor time to paint a room and three hours to sand a floor. If a decision were made to spend your time sanding one floor, how many painted rooms would have been foregone?

"free" health care is not really free.

Because there are opportunity costs to increasing health care,

-utilize available resources and technology -are possible to produce

Combinations of goods that are on the production possibilities curve:

cannot be produced with available technology and resources require economic growth to attain

Combinations of goods that fall beyond the production possibilities curve:

more free time more new cars higher levels of education more television sets

Compared to 1900, because of technology, the modern U.S. economy has (select all that apply): -more free time -more new cars -higher levels of education -more television sets -shorter life expectancy

the other-things-equal assumption.

Consider the relationship between the price of gas and the quantity of gas consumed by drivers. If we are to consider the price of gas as the only factor affecting the quantity of gas consumed, while holding other factors such as drivers' incomes and tastes and preferences irrelevant, then we are applying

opportunity

Due to scarcity of resources, every individual, whether rich or poor, is faced with an ____ cost when choosing to produce or consume a good or service.

Output

Each point on the production possibilities curve represents the maximum ______ that can be produced in a given time period with available resources.

analyzing economic behavior. designing economic policy.

Economic models are highly useful in:

may not always

Economic policies _______ conform to economic theory.

may be a "socio political" decision may be based on political choices may be based on economic theory

Economic policies: may be a "socio political" decision may be based on political choices always rely on sound economic theory may be based on economic theory

scarce, limited, or finite

Economics is concerned with figuring out ways to allocate ____ resources in the best possible way.

scarce, limited, insufficient, or finite

Economics is concerned with how to allocate ____ resources to meet the unlimited wants of the members of a given society.

production

Economists classify the factors of ____ into land, labor, capital, and entrepreneurship.

behavior

Economists develop theories of economic _________ to use to explain market behavior.

Oil and mineral deposits Water Arable land Forests

Examples of what would be synonymous with land to an economist.

Capital

Factories, networks, transportation and distribution facilities, as well as tools and machinery are all examples of ______ goods.

Capital

For economists, ______ goods are those goods, such as machines, used to produce final consumer goods and services.

land

From an economic standpoint, ______ includes all natural resources used in the production process.

Government faIure

Government intervention that fails to improve economic outcomes is called a:

Recession

In 2008-2009, Americans lost their jobs, their savings, and even their homes by the millions. This period of time is now referred to as the Great ____.

market mechanism

In a market driven economy which process dominates the decision-making process?

optimal/best

In general, one specific mix of output is ____ for a country.

Market Capitalism

In his 1776 book "Wealth of Nations", Adam Smith championed ____ ____.

Income

In the U.S. economy people today seem to think that they need twice as much ____ to be happy.

lower income households higher income households middle income households

In the U.S. economy which of these groups say they want more

does

In the type of economy existing in the United States and most other countries, the government _______ play a role.

no "free lunch" a cost borne by society in utilizing these resources to produce any good or service

Land, labor, capital, and entrepreneurship are all scarce economic resources privately or collectively owned by members of society. When these scarce resources are used to produce goods or services, there is _____.

hand

Market sales and prices convey messages and direct the market, much like the "invisible ___"

increased

Military spending _______ in the three years after 9/11.

More

Nations that historically adopted Marxist systems have become _____ market-oriented in recent years.

value judgements

On which of the following does the designation of any particular mix of output for a particular society as "best" rest on?

along

Points ______ the production possibilities curve are possible to produce so long as an economy uses all of its available resources and technology.

outside

Points lying ______ the production possibilities curve would represent a greater, but unachievable, level of output than that at any point on the curve.

A commercial baking oven

Representation of investment spending?

military

The 9/11 terrorist attacks on New York City and Washington D.C. moved the mix of output in the U.S. toward more _______ spending.

2008-2009

The Great Recession occurred during

Technology

The abundance of goods and services we have today is largely because our factories, offices, and homes have been transformed by ______.

labor entrepreneurship land (natural resources) capital

The basic factors of production include:

Microeconomics

The branch of economics that studies the decision-making process of individual workers, households, and firms (i.e., individual components of the larger economy) is known as:

Private

The capitalist system (or market capitalism) relies on _______ ownership of resources.

scarce resources are used to produce so-called "free goods" that have alternative uses that are given up in order to produce said "free" goods.

The concept that "there is no free lunch" reflects the notion that:

Laissez-faire

The doctrine of "leave it alone," of nonintervention by government in the market mechanism is known as

What

The economic question of '____ to produce' is about decisions related to the mix (quantity and type) of goods and services to make available in a given economy.

how

The economic question of '______ to produce' is about decisions related to the mix of factor inputs (land, labor, and capital) used to produce goods and services.

for whom

The economic question of '______ to produce' is about decisions related to who is going to consume the goods and services produced.

Incentive

The economies of the former Soviet Union, eastern Europe, and China (who based their communist vision on the "communist ideal") prior to market reforms faced problems caused by a lack of coordination and a lack of ________.

Adam Smith

The economist who in 1776 promoted market capitalism was:

Price

The essential feature of the market mechanism is the ____ signal.

Entrepreneurship

The factor of production related to the skill in creating products, services, and processes is known as ____

market sales and prices

The market mechanism is the tool where _______ send a signal to producers about what mix of output consumers want.

An opportunity cost

The most desired good or service that is given up in order to obtain something else is known as

George W. Bush Donald Trump

The president(s) who supported a less active role for the government are: George W. Bush Barack Obama Bill Clinton Donald Trump

possible; needs or wants

The production possibility curve shows the output combinations that are _______. A country will choose to produce at a certain mix of output (i.e., a point on the production possibility curve) depending on the country's _______.

the country's needs or wants

The production possibility curve shows the output combinations that are possible. A country will choose to produce at a certain mix of output (i.e., a point on the production possibility curve) depending on:

Entrepreneurship

The skill of creating products, services and processes is the factor of production called

keeping government from interfering in the economy.

The term "laissez-faire" refers to:

WHY output is produced

The three main decisions that must be addressed by an economic system does not include:

how

To find an optimal method of producing goods and services is the goal of '_______' to produce.

What are the basic goals of an economic system? How does a market economy address the basic goals of an economic system? What role should government play in shaping economic outcomes?

To understand how an economy works, we have to ask and answer a lot of questions. Which of the following are the most important questions?

When should the government draft new laws?

To understand how an economy works, we have to ask and answer a lot of questions. Which of the following is the least important question to understand how an economy works?

The maximum combination of goods that can be produced given available resources

What does each point on a production possibilities curve represent?

shifts

When a curve _______, the underlying relationship between two variables has changed.

different across countries

When comparing mixed economies, the role of the government is:

a mixed economy

When nations use a combination of government directives and market mechanisms to determine economic outcomes, it can be described as:

National income. The level of prices in the economy. International trade. The unemployment rate.

Which of the following are economic measures considered in macroeconomic analysis? National income. An individual firm's profit-maximizing or loss-minimizing level of output. The level of prices in the economy. An individual firm's total revenues and total costs. International trade. The unemployment rate.

New factory Enhanced national telecommunication network Machinery used to produce wood furniture

Which of the following are investment goods?

The expenditures of one government agency. A consumer's expenditure decisions. Measuring total revenues of a firm or household. Measuring the price of specific goods.

Which of the following are issues most explored in microeconomics?

An situation where the market mechanism generates optimal outcomes. An economy that produces the perfect amount of corn.

Which of the following are not examples of market failure? An economy which produces too few hospitals. An economy which neglects the needs of the poor. An situation where the market mechanism generates optimal outcomes. An economy that produces the perfect amount of corn. Unregulated producers destroying the environment.

What to produce? For whom to produce? How to produce?

Which of the following are the three critical questions that an economic system must address?

That other things remain unchanged (equal) The idea that factors other than those being considered in a particular analysis do not change

Which of the following define ceteris paribus? (Check all that apply.) That other things remain unchanged (equal) The idea that factors other than those being considered in a particular analysis change The idea that factors other than those being considered in a particular analysis do not change

A government-appointed central planning board Government ownership of most or all property resources

Which of the following describe central planning?

Production possibilities

Which of the following illustrates the alternative combinations of goods and services that could be produced in a given time period with all available resources and technology?

All variables except those under immediate consideration are held constant for a particular analysis.

Which one of the following best clarifies the "other-things-equal" assumption?

Karl Marx

Who asserted that long-term prosperity would be possible only if the state owned the means of production and managed the economy?

Government

Who owns most property resources under central planning?

Karl Marx

Who predicted that the capitalist system of private ownership would eventually self-destruct?

Labor

____ consists of the physical actions and mental activities that people contribute to the production of goods and services.

Scarcity

____ is the notion that, in general, there is a lack of enough resources to satisfy all desired uses of those resources.

The Market Mechanism

______ is the use of market prices and sales to signal desired outputs (or resource allocations).

Scarce

______ resources are those for which the quantity available is less than the quantity desired.

The Political Process

_______ makes decisions such as increasing the share of military spending, how many interstate highways to build or how many Head Start classes to offer.