ECON Test #1

ceteris paribus assumption

"holding all other things equal"; important variables will be held constant

a. most value relative to its price.

Uvaldo is deciding which brand of energy drink to buy. According to market economics, he would benefit MOST from basing his decision on which brand has the: a. most value relative to its price. b. most attractive packaging. c. most innovative marketing campaign. d. most availability in his local market.

b. prices and profits

What drives and disciplines markets? a. equity b. prices and profits c. ceteris paribus assumptions d. efficiency

c. A change in the market price affects the quantity supplied, but not the supply.

What is the difference between a change in quantity supplied and a change in supply? a. There is no difference. b. A change in the quantity supplied shifts the supply curve, and a change in supply simply moves along the supply curve. c. A change in the market price affects the quantity supplied, but not the supply. d. A change in the market price affects the supply, but not the quantity supplied.

c. movement from inside the PPF onto the PPF.

A change from an inefficient mix to an efficient mix of output would BEST be represented with a production possibilities frontier (PPF) as a: a. shift outward of the PPF. b. shift inward of the PPF. c. movement from inside the PPF onto the PPF. d. movement from a point on the PPF to a point inside the PPF.

a. rise; fall

A decrease in supply causes the equilibrium price to ___________ and the equilibrium quantity to ___________. a. rise; fall b. fall; rise c. rise; rise d. fall; fall

c. $300, since that is the amount she could have made by arguing a case in court

A lawyer can argue a case in court for one hour and make $300. She could alternatively use that hour of time to type a legal brief in her office. What is the opportunity cost of her typing the legal brief? a. nothing, since she would never type a legal brief b. nothing, since she would always hire an administrative assistant to type for her c. $300, since that is the amount she could have made by arguing a case in court d. There is not enough information in this problem to be able to answer the question

a. constant opportunity costs.

A production possibilities frontier that is a straight line is the result of: a. constant opportunity costs. b. increasing opportunity costs. c. scarcity. d. underemployment of resources

b. increase in income if the good is normal.

A shift to the right of the demand curve could be caused by a(n): a. decrease in tastes or preferences. b. increase in income if the good is normal. c. increase in the price of a complement. d. decrease in the price of a substitute.

c. model.

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a: a. practice. b. conclusion. c. model. d. metaphor.

d. rational, if Abdul values sleep more highly than the benefit he would expect to receive from attending the class.

Abdul decided to sleep in rather than attend his 8:30 A.M. economics class. Economists would find this choice: a. rational, if Abdul has not missed any other classes. b. irrational, because economic analysis suggests you should always attend the classes for which you have paid. c. irrational, because oversleeping is not in Abdul's self-interest. d. rational, if Abdul values sleep more highly than the benefit he would expect to receive from attending the class.

d. one country can produce more of a good than another country.

Absolute advantage is defined as: a. goods and services are produced at their lowest resource (opportunity) cost. b. the mix of goods and services produced is just what the society desires. c. one country has a lower opportunity cost of producing a good than another country. d. one country can produce more of a good than another country.

a. working in a factory.

All of the following are considered human capital, EXCEPT: a. working in a factory. b. obtaining a college education. c. receiving training for another area in a current job. d. completing a professional development course.

a. technology change that makes aircrafts more fuel efficient.

All of the following will decrease the supply of commercial air travel, EXCEPT a(n): a. technology change that makes aircrafts more fuel efficient. b. increase in jet fuel prices. c. increase in the wages of airline pilots. d. decrease in the number of companies that offer commercial air travel.

d. supply; left

An increase in the cost of coffee beans, which is used to make coffee, will cause the ____________ for coffee to shift __________. a. demand; right b. supply; right c. demand; left d. supply; left

c. complementary goods.

An increase in the price of ice cream causes the demand for sprinkles to decrease. In this case, ice cream and sprinkles are: a. substitute goods. b. independent goods. c. complementary goods. d. inferior goods.

d. we face tradeoffs in nearly every choice we make.

Because of scarcity: a. resources are limitless. b. wants are limited. c. choices are unlimited. d. we face tradeoffs in nearly every choice we make.

b. inferior; as income rises, demand for bus tickets falls

Bus tickets are often considered _____ goods because _____. a. inferior; as the price of a related good falls, demand for bus tickets increases b. inferior; as income rises, demand for bus tickets falls c. substitute; as the price of a related good falls, demand for bus tickets decreases d. substitute; as income rises, demand for bus tickets falls

d. both the price of butter and quantity of butter traded fall.

Butter is a substitute for margarine. If the price of margarine drops, we would expect to see: a. the price of butter rise and the quantity of butter traded fall. b. the price of butter fall and the quantity of butter traded rise. c. both the price of butter and the quantity of butter traded rise. d. both the price of butter and quantity of butter traded fall.

d. rose even though national income declined.

During the recent recession, consumer spending on dogs and cats: a. fell because national income declined. b. fell even though national income increased. c. rose because national income increased. d. rose even though national income declined.

c. people make rational decisions.

Economics is BEST defined as the study of how: a. to classify resources used to produce final goods and services. b. resources are apportioned to satisfy human wants. c. people make rational decisions. d. technology can be used to change scarce resources into free resources.

a. making information available to market participants improves the functioning of the market.

Economists believe that: a. making information available to market participants improves the functioning of the market. b. information should be sold to the highest bidder. c. the flow of information has minimal impact on market efficiency. d. data is more important to traders than information.

b. land.

Economists refer to "rent" as a payment to: a. housing. b. land. c. capital. d. labor.

b. incentives.

Economists understand that people respond to: a. laws. b. incentives. c. threats more than rewards. d. positives, but not negatives.

a. how well resources are used and allocated.

Efficiency within economics focuses on: a. how well resources are used and allocated. b. the fairness of various policies. c. how quickly a task can be completed. d. calculations of opportunity cost.

a. people following incentives.

Employers give full-time employees that have been on the job more than three years employee stock options. This is an example of: a. people following incentives. b. thinking on the margin. c. irrational behavior. d. opportunity costs.

d. business firms engage in production activities that pollute the air and water.

Government intervention in the market is helpful when: a. consumers are free to buy from a number of different firms. b. consumers and firms have good information. c. firms face increasing competition from new entrants into the market. d. business firms engage in production activities that pollute the air and water.

d. the price will change and in response market participants will slide along the existing supply and demand curves until the market reaches equilibrium.

If a market is NOT at equilibrium: a. supply will shift until the market reaches equilibrium. b. demand will shift until the market reaches equilibrium. c. both supply and demand will shift until the market reaches equilibrium. d. the price will change and in response market participants will slide along the existing supply and demand curves until the market reaches equilibrium.

a. capital

If a pizza parlor uses an oven in its production process, the oven is an example of which factor of production? a. capital b. entrepreneurial ability c. labor d. land

c. cost of the additional food

If a restaurant that traditionally has served only lunch and dinner wants to open for breakfast, which of the following factors should be considered? a. rent b. furniture c. cost of the additional food d. insurance costs

d. underutilized

If an economy is operating at a point that is inside of its production possibilities frontier, then it can be assumed that its resources are: a. misallocated. b. overutilized. c. fully utilized. d. underutilized

b. only production efficiency is achieved.

If society produces a pie at the lowest possible cost and then distributes the pie evenly among its population, then: a. production and allocative efficiency are achieved. b. only production efficiency is achieved. c. neither production efficiency nor allocative efficiency is achieved. d. only allocative efficiency is achieved.

d. normal good.

If the demand for iPhones rises as incomes increase, then the iPhone is a(n): a. inferior good. b. abnormal good. c. supply good. d. normal good.

c. opportunity cost of the extra health care.

If the government of Spain decides to spend less on the military and more on health care, the forgone spending on military items represents the: a. cost factor of the extra health care. b. production efficiency of the extra health care. c. opportunity cost of the extra health care. d. allocative cost of the extra health care.

b. $10.

If you were not studying economics, you could be doing one of the following: sleeping in (which you value at $5), playing cards with your friends (which you value at $10), or working (you would have earned an extra $8). The opportunity cost of studying economics is therefore: a. $23. b. $10. c. $8. d. $5.

a. market; planned

In a ____ economy, individuals and firms own most resources, and in a _____ economy, the government controls most resources. a. market; planned b. planned; socialist c. planned; market d. socialist; planned

b. price

In any given market, _____ is determined by "what the market will bear." a. quantity b. price c. quality d. None of these are determined by "what the market will bear."

c. conflicting with one another.

In the study of economics, the goals of efficiency and equity are often: a. given equal emphasis. b. objectively definable. c. conflicting with one another. d. compatible.

b. not all resources are equally well suited to produce all goods.

Increasing opportunity costs occur along the PPF because: a. of unemployment in the economy. b. not all resources are equally well suited to produce all goods. c. resources lack specialization. d. of inequities in the distribution of income.

c. markets.

Institutions that bring buyers and sellers together so they can interact and transact with each other are called: a. networking sites. b. interactive modes. c. markets. d. arenas.

a. education, on-the-job training, and professional training activities.

Investment in human capital refers to: a. education, on-the-job training, and professional training activities. b. increasing the machinery and equipment firms use. c. increasing the number of people working at companies. d. increasing the financial capital in the economy.

a. that they readily pay $6 per cupcake

Luz sells cupcakes. According to market economics, which is the BEST signal that consumers value her product highly? a. that they readily pay $6 per cupcake b. the glowing Yelp reviews they often write c. the line out the door every Sunday morning d. the many competing companies that imitate her business.

b. unemployment.

Macroeconomics is concerned with issues such as: a. which orange juice to buy. b. unemployment. c. which job to take. d. what price to charge for goods.

c. additional costs and benefits.

Marginal analysis would put an emphasis on: a. total monetary costs and benefits. b. total opportunity costs and benefits. c. additional costs and benefits. d. total tangible costs and benefits.

d. Markets differ in all of these.

Markets differ in: a. geographical location. b. products offered. c. size. d. Markets differ in all of these.

c. land; rent

Natural resources in the production process are called _____, and their payment is called _____. a. capital; rent b. labor; interest c. land; rent d. land; wages

d. influence all economic decisions.

Opportunity costs: a. are generally the same from individual to individual. b. involve monetary rather than nonmonetary costs. c. decrease as individuals become wealthier. d. influence all economic decisions.

c. 2.0 lawns mowed

Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. Ashanti's opportunity cost for each additional dog walked is: a. 0.5 lawns mowed. b. 1.5 lawns mowed. c. 2.0 lawns mowed. d. 2.5 lawns mowed.

b. Ashanti has absolute advantage in dog-walking, and Paolo has comparative advantage in lawn-mowing.

Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. One can conclude that: a. Ashanti has absolute advantage in lawn-mowing, and Paolo has comparative advantage in dog-walking. b. Ashanti has absolute advantage in dog-walking, and Paolo has comparative advantage in lawn-mowing. c. Paolo has absolute advantage in lawn-mowing, and Ashanti has comparative advantage in dog-walking. d. Paolo has absolute advantage in dog-walking, and Ashanti has comparative advantage in lawn-mowing.

a. an incentive.

Paying a salesperson more for increased sales is an example of: a. an incentive. b. an opportunity cost. c. efficiency. d. equity

a. marginal analysis; marginal analysis

People use _____ to determine how many hours to work, and businesses use _____ to determine how much of their product they are willing to supply to the market. a. marginal analysis; marginal analysis b. allocative efficiency; production efficiency c. production efficiency; marginal analysis d. marginal analysis; allocative efficiency

d. quantity that producers are willing and able to sell at a given price.

Quantity supplied is the: a. amount that producers must sell in order to stay in business. b. supply schedule. c. quantity of points that connect to form a supply curve. d. quantity that producers are willing and able to sell at a given price.

d. All of these are examples of "thinking at the margin."

Rational behavior requires "thinking at the margin." Which of the following is an example of this type of thinking? a. deciding whether a second burger is worth the extra $2 b. deciding whether your overtime pay is worth working on Saturday (your day off) c. deciding whether to pay a fine for polluting the local harbor or installing antipollution machinery d. All of these are examples of "thinking at the margin."

c. limited but wants are unlimited.

Resources are: a. unlimited but wants are limited. b. limited but efficiency is unlimited. c. limited but wants are unlimited. d. unlimited but efficiency is limited.

d. unlimited wants exceed limited resources.

Scarcity is BEST defined as when: a. the quantity demanded exceeds quantity supplied. b. the quantity supplied exceeds quantity demanded. c. unlimited resources exceed limited wants. d. unlimited wants exceed limited resources.

c. is faced by all individuals and societies.

Scarcity: a. is synonymous with poverty. b. is eliminated with greater technology. c. is faced by all individuals and societies. d. can be eliminated with adequate resources.

c. in both microeconomics and macroeconomics.

Supply and demand analysis is used: a. only in microeconomics. b. only in macroeconomics. c. in both microeconomics and macroeconomics. d. in neither microeconomics nor macroeconomics.

a. $0.61.

Suppose that a store sells candy bars for $0.89 for one, and $1.50 for two. The marginal cost of the second candy bar is: a. $0.61. b. $0.75. c. $0.89. d. $1.50.

a. high for this painting and it should be lowered.

Suppose that an artist prices his painting at $150, but it remains unsold. We can conclude that the price of $150 is too: a. high for this painting and it should be lowered. b. high for this painting but it should not be lowered. c. low for this painting and it should be raised. d. low for this painting but it should not be raised.

b. The United States has an absolute advantage over Mexico in producing both goods.

Suppose that if the United States produced only oil, it could produce 25 million barrels, and if it produced only microchips it could produce 20 million chips. Suppose that if Mexico produced only oil, it could produce 16 million barrels, and if it produced only microchips, it could produce 8 million chips. Which of the following statements is then correct? a. Mexico has a comparative advantage in producing both goods. b. The United States has an absolute advantage over Mexico in producing both goods. c. Mexico has an absolute advantage over the United States in producing both goods. d. The United States has a comparative advantage in producing both goods.

b. shortage of this product and the price should rise.

Suppose that quantity supplied of a product equals 5 and quantity demanded equals 8. In this market, there is a: a. shortage of this product and the price should fall. b. shortage of this product and the price should rise. c. surplus of this product and the price should fall. d. surplus of this product and the price should rise.

c. Advertise or change the product to make it more desirable.

The Wonderful Widget Company is trying to increase the market price. What is one strategy it can use? a. Increase the amount of resources devoted to the production of the good. b. Lower production costs. c. Advertise or change the product to make it more desirable. d. Lobby the government to cut taxes on businesses.

a. microeconomics.

The economics of uranium mining would be studied in: a. microeconomics. b. inductive logic. c. deductive logic. d. macroeconomics.

a. macroeconomics.

The field of economics that is concerned about the broader issues in the economy such as inflation, unemployment, and national output of goods and services is called: a. macroeconomics. b. microeconomics. c. national economics. d. labor force economics.

d. increasing costs.

The fundamental reason why supply curves slope upward is: a. decreasing benefits. b. decreasing costs. c. increasing benefits. d. increasing costs.

a. shift outward of the PPF.

The introduction of the tablet computer to the U.S. economy would BEST be represented with a production possibilities frontier (PPF) as a: a. shift outward of the PPF. b. shift inward of the PPF. c. movement from inside the PPF onto the PPF. d. movement from a point on the PPF to a point inside the PPF.

c. decreasing opportunity costs and increasing returns.

The limits on international trade include all the following, EXCEPT: a. transportation and communication costs. b. increasing opportunity costs and diminishing returns. c. decreasing opportunity costs and increasing returns. d. Trade may hurt some industries and individuals within each country

b. prices provide information for both buyers and sellers.

The market economy is often called the price system because: a. prices are often not known until after the transaction is completed. b. prices provide information for both buyers and sellers. c. by law, all prices much be publicized. d. prices become less important over time.

a. the expenditures for food.

The opportunity costs of attending college do NOT include: a. the expenditures for food. b. the costs of textbooks or eBooks. c. the forgone wages that could have been earned working. d. required student activity fees.

b. production possibilities frontiers for nations are linear.

The practical constraints on trade include all of the following, EXCEPT: a. every international transaction involves costs. b. production possibilities frontiers for nations are linear. c. production possibilities frontiers exhibit increasing costs and diminishing returns. d. some industries and individuals in a country may be hurt by an expansion of trade.

b. physical and mental skills and talents.

The resource known as "labor" includes: a. physical labor only. b. physical and mental skills and talents. c. people willing to do physical and difficult work. d. the work of legal workers.

d. should export those goods they can produce at a lower opportunity cost than another country.

The theory of comparative advantage says that countries: a. should restrict trade by cutting off all imports. b. should import those goods they can produce at a lower opportunity cost than another country. c. can never benefit from specialization in trade. d. should export those goods they can produce at a lower opportunity cost than another country.

d. comparative advantage.

The theory which suggested that countries would mutually benefit from trade by specializing in export goods they could produce at a lower opportunity cost than another country is called: a. marginal utility. b. labor specialization theory. c. absolute advantage. d. comparative advantage.

a. we can confidently say that market quantity supplied is at least 25 DVDs.

There are two sellers in the DVD market, Wen and Ahmed. If the market price were $5 per DVD, Wen would be willing to sell 10 DVDs and Ahmed would want to sell 15 DVDs. If the market price were to rise to $7, then: a. we can confidently say that market quantity supplied is at least 25 DVDs. b. the effect on market supply is unknown because we don't have the full graphs for these two sellers. c. the market quantity supplied must be less than 25. d. the market quantity supplied must be between 10 and 15 DVDs.

c. negative

There is a(n) _____ relationship between price and quantity demanded. a. indeterminate b. positive c. negative d. indeterminate, positive, and negative

b. specialize in the commodity in which it has a comparative advantage.

To gain from trade, a country should: a. always try to get a favorable tariff. b. specialize in the commodity in which it has a comparative advantage. c. always specialize in the commodity in which it has an absolute advantage. d. trade only with its political allies.

d. a driver of economic growth

Trade is: a. a way for rich countries to take advantage of poorer countries. b. good for rich countries and bad for poorer countries. c. a drag on the economies of the trading countries. d. a driver of economic growth

b. supply of flour to decrease.

Wheat is the main input in the production of flour. If the price of wheat increases, all else equal, we would expect the: a. supply of flour to be unaffected. b. supply of flour to decrease. c. supply of flour to increase. d. demand for flour to decrease.

c. allocatively efficient.

When an economy is producing the mix of goods and service MOST desired by society, that economy is considered to be: a. productively efficient. b. productively equitable. c. allocatively efficient. d. allocatively equitable.

d. production efficiency.

When goods are produced at the lowest possible cost, an economy is said to have achieved: a. inferior quality goods. b. cheap production. c. allocative efficiency. d. production efficiency.

c. quantity rises, and the equilibrium price falls.

When production technology improves, supply increases and the equilibrium: a. price and quantity increase. b. price and quantity decrease. c. quantity rises, and the equilibrium price falls. d. quantity falls, and the equilibrium price rises.

c. opportunity cost.

When the government chooses to use resources to build tourist centers, the chosen resources are no longer available to build highways. This BEST illustrates the concept of: a. macroeconomics. b. scarcity. c. opportunity cost. d. efficiency.

c. the whole supply curve shifts upward and to the left.

When the supply of citrus products decreases: a. there is a movement upward on the supply curve. b. there is a movement downward on the supply curve. c. the whole supply curve shifts upward and to the left. d. the whole supply curve shifts downward and to the right.

b. national income

Which is NOT a determinant of supply? a. the cost of resources b. national income c. prices of other commodities d. taxes and subsidies

c. reducing the level of international trade

Which is NOT a source of economic growth? a. increasing business investment b. increasing research and development c. reducing the level of international trade d. reducing the variability of inflation

c. They generally benefit the poorer individual as well as the richer individual.

Which is TRUE about specialization and exchange between two individuals? a. They generally benefit the poorer individual at the expense of the richer individual. b. They generally benefit the richer individual at the expense of the poorer individual. c. They generally benefit the poorer individual as well as the richer individual. d. They generally benefit neither the poorer individual nor the richer individual.

a. the electricity used at the park

Which is an example of capital in the production process of an amusement park? a. the electricity used at the park b. the mechanics who maintain the equipment c. the roller coaster d. the ticket-taker

a. history of the product

Which of the following is NOT a determinant of demand? a. history of the product b. tastes and preferences c. prices of related goods d. income

c. money

Which of the following is NOT an economic factor of production? a. land b. entrepreneurial ability c. money d. labor

b. painting one's house

Which of the following is NOT an example of a market? a. neighborhood lemonade stand b. painting one's house c. ticket scalping d. New York Stock Exchange

c. Competition leads firms to provide products at the lowest possible price.

Which of the following is NOT an example of market failure? a. Water is polluted by a paper company located by a river. b. Air is polluted by a manufacturing firm. c. Competition leads firms to provide products at the lowest possible price. d. Consumers must buy water from one local water utility.

a. How will the system accommodate change?

Which of the following is NOT considered a basic economic question? a. How will the system accommodate change? b. What goods and services will be produced? c. Who will receive the goods and services? d. How will these goods and services be produced?

c. Who decides what goods and services are in demand?

Which of the following is NOT one of the three basic economic questions that each society must answer? a. What goods and services are to be produced? b. How are the goods and services to be produced? c. Who decides what goods and services are in demand? d. Who will receive the goods and services?

d. They can contain legal or illegal activity conducted by any individual or business.

Which of the following is TRUE about markets? a. They only contain legal activity conducted by incorporated business. b. They can contain legal or illegal activity conducted by incorporated business. c. They can contain legal activity conducted by any individual or business. d. They can contain legal or illegal activity conducted by any individual or business.

d. when the market fails to provide goods efficiently

Which of the following is a case when the government should intervene in the economy? a. when consumers cannot make up their minds what they want to purchase b. when sellers make poor business decisions c. when producers use the least-cost methods of production d. when the market fails to provide goods efficiently

b. Incentives matter.

Which of the following is a key idea in economic thinking? a. Scarcity exists for the poor but not for the rich. b. Incentives matter. c. The value of a good can be objectively measured, and is the same for everyone. d. All of these are key ideas in economic thinking.

a. a study of the business cycle

Which of the following is a macroeconomic topic? a. a study of the business cycle b. the price of a pair of Nike shoes c. the total sales for GE in 2009 d. the labor market for computer analysts

d. a comparative advantage in the production of copper by other nations

Which of the following situations would MOST likely lead to an import of copper? a. a tariff placed on copper b. an absolute disadvantage in the production of copper compared to other nations c. an absolute advantage in the production of copper by other nations d. a comparative advantage in the production of copper by other nations

c. a decrease in the product's price

Which of the following will NOT cause an increase in demand? a. an increase in the price of a substitute good b. a decrease in the price of a complementary good c. a decrease in the product's price d. an increase in the number of buyers in the market

c. higher interest rates for new car financing

Which of the following would NOT affect the supply of new automobiles? a. an improvement in automobile manufacturing technology b. a labor strike in the steel industry c. higher interest rates for new car financing d. a subsidy for struggling automobile manufacturers

b. a decrease in land taxes

Which of the following would shift the supply curve for corn to the right? a. an increase in land taxes b. a decrease in land taxes c. an increase in the market price of corn d. a decrease in the market price of corn

c. some resources are not being used.

Zetaland produces widgets and gadgets. At current levels of output, it can produce more of both. We can conclude that: a. Zetaland is at full employment. b. opportunity cost is maximized. c. some resources are not being used. d. the economy is on the PPF.

c. Efficiency

_____ is how well resources are used and allocated. a. Scarcity b. Choice c. Efficiency d. Equity

d. Equity

_____ is the fairness of various issues and policies. a. Scarcity b. Choice c. Efficiency d. Equity

d. Production efficiency; allocative efficiency

_______________ occurs when goods and services are produced at their lowest resource cost, while _________________ occurs when the mix of goods and services produced is the most desired by society. a. Allocative efficiency; production efficiency b. Production efficiency; social efficiency c. Allocative efficiency; social efficiency d. Production efficiency; allocative efficiency

microeconomics

deals with decision making by individuals, businesses, industries, and governments

planned economics

economic system where most of the productive resources are owned by the state and most economic decisions are made by central governments

capitalist or market economy

economic system where private individuals and firms own most of the resources

incentives

factors, both good and bad, that influence how people make decisions

equity

fairness

macroeconomics

focuses on the broader issues we face as a nation

scarcity; not the same as something being scarce!!

having too many wants but too few resources to achieve them all

efficiency

how well resources are used and allocated

capital

includes manufactured products such as tractors, welding equipment, and computers that are used to produce other goods and services.

land

includes natural resources and physical land

labor

includes the mental and physical talents of individuals who produce products and services

macroeconomics

inflation, unemployment, impact of government spending, economic growth, business cycles, recession are all examples of...

allocative efficiency

mix of goods and services produced is the most desired by society

absolute advantage

one country can produce more of a good than another country

comparative advantage

one country has a lower opportunity cost of producing a good than another country

profit

payment earned by entrepreneurs

wages

payment to labor

rent

payment to land as a resource

positive questions

questions that can be answered one way or another as long as the information is available

normative questions

questions that involve societal beliefs on what should or should not be done

production possibilities frontier (PPF)

shows the combinations of two goods that are possible for a society to produce at full employment. points on or inside are attainable, and those outside are unattainable

economics

studies how individuals, firms, and societies make decisions to maximize their well-being given limitations

entrepreneural ability

the combination of land, labor, and capital to produce goods and services while assuming risks associated with running a business

interest

the payment to capital

production

turning resources into products and services that people want

opportunity cost

weighing the costs and benefits of every decision made; what is given up doing one activity to complete another

1. what goods and services are to be produced? 2. how are these goods and services to be produced? 3. who will receive these goods and services?

what are the basic economic questions? (3)

1. economics is concerned with making choices with limited resources 2. when making decisions, one must take into account tradeoffs and opportunity costs 3. specialization leads to gains for all involved 4. people respond to incentives, both good and bad 5. rational behavior requires thinking on the margin 6. markets are generally efficient; when they aren't, government can sometimes correct the failure 7. institutions and human creativity help explain the wealth of nations

what are the key principles of economics? (7)

1. increasing business investment (physical capital) 2. increasing average education levels (human capital) 3. increasing research and development 4. reducing both the level and variability of inflation 5. reducing the tax burden 6. increasing the level of international trade

what are the sources of economic living? (6)

microeconomics

what orange juice to buy, where to go on vacation, items a business should produce are all examples of...

production efficiency

when goods are produced at the lowest possible cost

allocative efficiency

when individuals who desire a product the most get those goods and services

production efficiency

when the mix of goods is produced at the lowest possible resource or opportunity cost