Graded Randomized Exam 1 (Ch. 1,2,3)

To say that economics is a way of thinking about how people make rational decisions means that people:

respond to incentives.

An increase in technology:

shifts the PPF curve outward.

Rational behavior:

requires people to consider the total costs and total benefits of their decisions.

If the supply curve shifts leftward, the:

price in the market will increase.

In the market economy, the primary channel through which buyers and sellers communicate with each other is:

price.

The market economy is often called the price system because:

prices provide information for both buyers and sellers.

When goods are produced at the lowest possible cost, an economy is said to have achieved:

production efficiency.

A market economy is also known as a _____ economy, and decisions are made by _____.

socialist; private individuals

Markets tend to be efficient because:

people respond to incentives.

A good is a normal good if:

the demand curve shifts out if income goes up.

Economists refer to the payment to labor as:

wages.

Because of scarcity:

we face tradeoffs in nearly every choice we make.

Markets differ in:

Markets differ in all of these. - Geographical Location - Products Offered - Size

___________________ costs include the time and money that could have been spent on another highly valued activity

Opportunity

Comparative advantage exists when one country can produce:

a good at a lower opportunity cost than can another country.

A demand schedule is:

a list of prices and the quantities demanded at those prices.

A production possibilities frontier with constant opportunity cost is considered:

a straight line.

It must be recognized that private markets:

can fail.

If a consumer buys a set of headphones at the same time as she buys an MP3 player, these two products are MOST likely:

complementary goods.

In the study of economics, the goals of efficiency and equity are often:

conflicting with one another.

Investment in human capital refers to:

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

The law of supply states that if prices:

fall, producers will offer fewer products to the market.

An increase in demand causes the equilibrium price to __________ and the equilibrium quantity to ____________.

fall; rise

When consumers have no choice but to buy from one firm (local utility, etc.):

government regulation is usually used to protect consumers.

A shift to the right of the demand curve could be caused by a(n):

increase in income if the good is normal.

An item whose demand rises as people's incomes fall is known as a(n) ________ good.

inferior

The graph shows the PPF for goods A and B and X marks a combination that:

is unobtainable with current resources.

If an economy is producing at a point inside its PPF:

it is possible to produce more of one good without sacrificing some of the other good.

Economists generally define institutions as all of these, EXCEPT as a:

legal system that enforces contracts and laws.

Resources are:

limited but wants are unlimited.

In a ____ economy, individuals and firms own most resources, and in a _____ economy, the government controls most resources.

market; planned

Institutions that bring buyers and sellers together so they can interact and transact with each other are called:

markets.

Markets provide an incentive structure to:

maximize efficiency.

There is a(n) _____ relationship between price and quantity demanded.

negative

The conversion of resources to satisfy wants is described as:

production.

The theory of comparative advantage says that countries:

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

Supply is defined as:

the maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant.

When government policies are being designed:

there is usually a tradeoff between equity and efficiency.

Production levels to the right of the PPF are:

unattainable.

What are the three basic economic questions each society must answer?

what to produce; how to produce; for whom to produce