macroeconomics

When a country engages in international specialization, it focuses on producing which of the following?

Goods with the lowest opportunity costs

Which of the following is a common remedy when externalities affect large numbers of people or community interests are at stake?

Government intervention

Legislation limiting specific activities is the most direct method of addressing which market situation?

Negative externalities

Pigovian taxes and direct controls are two government solutions for which market situation?

Negative externalities

The two major benefits that arise from the market system's restriction of business risk to owners and investors are

attracting inputs and focusing attention.

Positive economics ______ value judgments, tries to establish ______ statements about economic behavior, and deals with ______ economic events.

avoids; scientific; actual

The market system depends on ______ both among buyers and among sellers.

competition

Two or more buyers and two or more sellers acting independently in a particular product market with the freedom to enter and leave the market best describes ______.

competition

A producer that charges more than the ______ will relinquish sales to other producers in a market economy.

competitive market price

The area depicted below the demand curve and above the market price is known as ______.

consumer surplus

______ goods satisfy wants directly, whereas ______ goods do so indirectly.

consumer; capital

Consumers must make choices about what to buy and what to forgo to fulfill wants because ______.

consumers' incomes are limited

In the circular flow model, the market economy creates ______.

continuous flows of goods and services, resources, and money

Which exemplifies a pair of substitute goods?

-Hotdogs and hamburger

Which of the following describes a budget line?

A curve showing various combinations of two products a consumer can purchase with a specific amount of income.

A point that lies inside the production possibilities curve reflects which of the following?

A failure to achieve full employment

What type of system is present in the vast majority of national economies?

A market system

Which of the following is characterized by the private ownership of resources and the use of markets to coordinate and direct economic activity?

A market system

Which of the following is true of a market system?

A market system is a combination of centralized government initiatives and decentralized actions taken by firms.

Which of the following illustrates that at any point in time, a fully employed economy must sacrifice some amount of one good to obtain more of another good?

A production possibilities table

What is adverse selection?

A situation in which one party in a contract lacks information about the other party and incurs major costs as a result.

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

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

Points ______ the production possibilities curve represent a maximum output of two products as long as the economy is fully employed.

Along

Which of the following requires a coincidence of wants between a buyer and a seller?

Barter

Why is it in our self-interest to economize or pick and choose goods and services that maximize our satisfaction?

Because of our limited incomes conflicting with our insatiable wants for goods and services

A consumer's --- line or constraint shows various combinations of two products that can be purchased with a specific amount of income.

Budget

Which of the following would be an example of the system accommodating change?

Buyers want more juice and less milk. Producers increase spending only on juice.

How does the market system develop methods for analyzing and managing risk?

By presenting businesses with the economic consequences of their decisions

___ is defined as the difference between the maximum price a consumer is willing to pay for a product and the actual price..

Consumer surplus

Factories, storage, transportation, and machinery are all examples of ______ goods.

Capital

If economists examine the relationship between the price of a good and sales of that good while ignoring other related factors, or assuming those other factors are equal, they are using which of the following?

Ceteris paribus

Which of the following combinations are unattainable given a consumer's budget line?

Combinations that fall beyond the budget line

Communism exhibits all the characteristics of a ______ system.

Command

Which of the following best serves as the regulatory mechanism of the market system?

Competation

Which of the following describes how the market system will promote progress?

Competitive markets create incentives for technological advance and capital accumulation, both of which contribute to promoting progress.

The straight-line budget constraint indicates ______ opportunity cost.

Constant

The _______ problems faced by the command economies of the former Soviet Union, eastern Europe, and China prior to market reforms became more difficult as the economies expanded and as markets became more complex.

Coordination

Which type of business structure is considered an independent legal entity?

Corporation

In recent years, new MP3 and digital technologies have replaced compact disks. This is an example of ______.

Creative destruction

Which of the following refers to reductions of combined consumer and producer surplus associated with the underproduction or overproduction of a good or service?

Deadweight loss

The inverse, or negative, relationship between price and quantity demanded is known as the law of ______.

Demand

How do positive externalities affect demand curves?

Demand curves shift to the left.

Which of the following is inherent in competition and limits the potential abuse of power?

Diffusion of economic power

Which type of intervention has the government primarily used to discourage or limit harmful air pollution?

Direct controls

which type of intervention has the government primarily used to discourage or limit harmful air pollution?

Direct controls

A(n) ______ system is a particular set of institutional arrangements and a coordinating mechanism that responds to the economizing problem.

Economic

Taken together, the four general categories of economic resources (land, labor, capital, and entrepreneurial ability) are referred to as which of the following?

Factors of production

Which of the following is the reason why every society needs to develop an economic system?

Every society faces the economizing problem.

True or false: Competition among sellers and government diffuses economic power within the economic units that make up an economy.

False

True or false: Competitive markets produce equilibrium prices and quantities that minimize the sum of consumer and producer surplus

False

True or false: Economists use the terms "capital" and "money" interchangeably

False

True or false: Money complicates exchange or trade.

False

True or false: Negative externalities, such as pollution, improve rather than reduce the utility of people and the communities in which they live and work.

False

Select all that apply Which statements about the profit system are true?

It is actually a profit and loss system. It encourages entrepreneurs to make prudent decisions.

The economies of the former Soviet Union, eastern Europe, and China prior to market reforms faced problems caused by a lack of coordination and a lack of ________.

Incentive

Encouraging hard work and skill acquisition with rewards of higher incomes and higher standards of living, is part of which virtue of the market system?

Incentives

Even at higher levels of ______, people will still face spending trade-offs, choices, and opportunity costs.

Income

Points lying ______ the production possibilities curve are attainable but reflect less total output than can be produced.

Inside

Property rights also extend to:

Intellectual property

Which of the following effects does competition have among buyers and sellers?

It diffuses economic power within businesses and households comprising the economy.

What effect would the moral hazard problem have on the behavior of individuals who obtain insurance against the financial risks of divorce?

It makes them more likely to file for divorce.

Which of the following can be stated as potentially true about any economy?

Its current choice of position on its production possibilities curve helps determine the curve's future location.

What do economists call the physical actions and mental activities that people contribute to the production of goods and services?

Labor

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

Land

A--(one word) is an institution or mechanism that brings buyers and sellers into contact.

Market

In a _______ system, people act in their own self-interest.

Market

Which of the following represents an institution or mechanism that brings buyers and sellers into contact?

Market

Which term describes the inability of a market to bring about the allocation of resources that best satisfies the wants of society?

Market failure

In which of the following do private individuals and firms own most of the property resources such as land and capital?

Market system

The maximum output of an economy with a specific level of resources is reflected by the points ______ the production possibilities curve

On

What occurs in a market transaction characterized by asymmetric information?

One party possesses significantly more information than the other party.

Unemployment in the economy is graphically represented by ______ the production possibilities curve

Points inside

What is the market result of a situation in which buyers possess more information than sellers?

Reduced market activity

In order to serve as money, an item must be generally acceptable to ______ in exchange for their goods and services.

Seller

In addition to goods, ___ also satisfy our wants.

Services

Which of the following specifically refers to demand?

The buyer side of any market

In a command economy, who determines the division of output between capital and consumer goods?

The central planning board

What can be expected to occur in the market when the government makes use of buyer subsidies to correct a positive externality?

The demand for the good causing the externality will rise, resulting in the demand curve shifting outward.

Based on the reality of political pressures, such as the need to satisfy constituents, which of the following statements is true?

The economic role of government is not always perfectly carried out.

Which of the following describes how a market system decides what will be produced?

The goods and services produced at a continuing profit will be produced, and those produced at a continuing loss will not.

Which of the following lead to increases in wants over time?

The introduction of new and improved goods

A production possibilities curve with an increasing slope is the result of which of the following?

The law of increasing opportunity costs

Why does government impose licensing or oversight restrictions on some markets characterized by a lack of buyer information about sellers but not others?

The process of obtaining information in some markets imposes unacceptably high human and economic costs.

In competitive markets where demand curves reflect buyers' full willingness to pay and supply curves reflect all the costs facing sellers, what is maximized when output equals the equilibrium quantity?

The sum of consumer and producer surplus

True or false: A central feature of the (pure) market system is the ability to reap monetary rewards from the innovation and creation of new products and processes.

True

Which statement best describes combinations of goods that are beyond the production possibilities curve?

They are unattainable.

For a given supply curve, how do higher prices affect producer surplus?

They increase it.

Moral hazard is a situation in which people or institutions behave more recklessly after which of the following happens?

They obtain insurance or a contract that shifts the financial burden of bad outcomes onto others.

People desire goods and services that provide maximum utility. In fact, our desires or wants are ______.

Unlimited

Government has total control over all economic activity in ______, whereas markets and prices direct nearly all economic activity in ____

a command system; laissez-faire capitalism

Consumers must forgo certain goods and services based on a limited budget because ______.

a consumer spends his or her limited budget purchasing a combination of goods and services that maximize his or her satisfaction

Select all that apply Which of the following are determinants of demand?

a) consumer income b) Consumer tastes c) Consumer expectations f) Number of buyers g) Prices of related goods

Technological advancements, such as the personal computer and medical discoveries, are primarily driven by the profit motive. However, such advancements eventually promote the public or social interest as though they are guided by _____.

an invisible hand

Consumer surplus can be illustrated as the area _____ the demand curve and ______ the market price.

below; above

The product market is the place where _______.

businesses sell goods and services and households buy goods and services

The law of demand is consistent with common sense because people ordinarily ______.

buy more at a low price

The price actually paid for a good is not reflected in the demand because demand is merely a statement of ______ buying of the good.

buyers' intentions regarding the

Selling human organs or buying illicit drugs are punished through fines and imprisonment. This exemplifies the concept that freedom of enterprise and choice are limited ______.

by laws preventing the production of specific goods and services

Tools, large-scale factories, machinery, transportation, and facilities are all examples of ______.

capital goods

The basis of competition is freedom of ______ exercised in the pursuit of ______.

choice; money

A central planning board sets the division of output between capital and consumer goods in a ______ system.

command

A buyer's intentions or plans in regard to the purchase of a product is known as ______.

demand

A change in the number of buyers is a determinant of market----

demand

Consumer expectations are a determinant of---

demand

_____ is the human specialization of some process.

division of labor

The marginal benefit curve for pollution reduction slopes ______ because of the law of ______.

downward; diminishing marginal utility

All natural resources, human resources, and manufactured goods that go into the production of goods and services are considered as society's scarce __resources

economic

Economic ----(one word) is achieved at the equilibrium quantity.

efficiency

The most important consequence of property rights is that they ______.

encourage cooperation by ensuring that only mutually agreeable economic transactions take place

During the second quarter, the price of Jonah's burgers remains constant, but the price of Sam's burgers increases. Other things ---- the law of demand indicates that fewer Sam's burgers will be purchased than in the previous quarter.

equal

Economic principles are generalizations that are ______.

expressed as the tendencies of average consumers, workers or firms

A cost or a benefit accruing to an individual or group that is external to a market transaction is known as a(n) ______.

externality

A(n)---- (Enter one word) is a cost or a benefit accruing to an individual or group, a third party, that is external to a market transaction.

externality

The title to an automobile or the deed to a cattle ranch assures a buyer that the seller is the legitimate owner of that property. This is an example of property rights _________.

facilitating exchange

True or false: The resource market is the place where resources or the services of households are produced.

false

True or false: When the benefits of pollution abatement exceed the costs to the community and society, the spending of scarce resources by government on other societal projects may be the best decision.

false

A government provision is a good or service provided _______ in order to correct for very large _______ externalities.

for free to everyone; positive

People who receive the benefits from a good without having to pay for it are known as ______.

free riders

The market system thrives on ______.

freedom of enterprise and choice

Completely eliminating a negative externality may be considered undesirable due to the _____

high costs of eliminating negative externalities

The ______ describes a situation faced in command economies in which producers have no reason to adjust production in response to shortages and surpluses in the economy.

incentive problem

Which of the following is a determinant of demand?

income

A favorable change in consumer tastes and preferences for a product will increase demand, shifting the demand curve to the right (right/left).

increase -right

Goods whose demand varies inversely with money income are called --- goods.

inferior

What is the simplified term economists use to refer to "factors of production"?

inputs

When a producer's supply curve is to the right of (or below) the total-cost supply curve, this represents the fact that its ______.

its supply curve does not capture all the costs legitimately associated with the production of its goods

The work-related activities of a teacher and doctor fall under the resource category of

labor

When positive externalities occur, the market demand curve lies to the ______ the total-benefits demand curve.

left of (below)

Diminishing marginal utility states that less satisfaction is derived from each successive unit of a product consumed. Therefore, the law of demand is upheld because, as each successive unit yields ______, consumers will buy additional units only if the price of those units is progressively ______.

less and less utility; reduced

A less-direct action than passing legislation to correct a negative externality is for the government to ______.

levy a specific tax on the producers of the related good

As a result of our ______ incomes and ______ wants, it is in our self-interest to economize or pick and choose goods and services that maximize our satisfaction.

limited; insatiable

The term "laissez-faire" refers to

limiting the government's interference in the economy.

Due to the diffusion of economic power inherent in competition, an employer who pays less than the competitive wage rate will ______.

lose workers to other employers

As a result of negative externalities that are imposed by producers, costs are transferred to society and therefore firms incur ______ production costs and have supply curves that are ______ the full cost associated with producing their goods

lower; below

The ______ curve for positive externalities reflects the benefit to the individuals who pay for the product.

market demand

Under the market system, ______ coordinate the decisions made by households and businesses.

markets and prices

Allocative efficiency occurs at quantity levels where the combined consumer and producer surplus is ______.

maximized

Consumer surplus is the difference between the _____ price a consumer is willing to pay for a product and the price paid.

maximum

Money performs several functions, but first and foremost it is a ______.

medium of exchange

Improvements in the methods of production allows for the creation of ______.

more goods with available resources

Another policy approach to ---- externalities is for government to levy a tax or charge specifically on the related good.

negative

Reducing a(n)---- externality has a cost and society must decide how much of a reduction in the externality it wants to pay for.

negative

Water and air pollution both result in a market failure known as a ----, or a spillover cost.

negative

If a market transaction imposes an uncompensated cost on a third party not directly involved in the transaction, the transaction results in a market failure known as a ______.

negative externality

Other things equal, when price falls, the quantity demanded rises. This represents the ______ relationship between the price and quantity demanded.

negative, or inverse,

A production possibilities curve (PPC) illustrates the attainable combination ______,

of two goods that can be produced given a specific set of resources

The market demand curve for positive externalities reflects ______.

only the benefits to those who pay for and use the product

Trade-offs arising from limited resources give rise to:

opportunity costs

A negative externality results when there is an ______ of resources to the production of a good and too ______ units are produced.

overallocation; many

In a market system, firm---- are subject to business risk.

owners

The direct way to reduce negative externalities from a certain activity is to ______.

pass legislation limiting that activity

The government will provide a public good where there are extremely large ----externalities.

positive

Vaccinations against common diseases are an example of a ______ externality.

positive

Economic growth, investment, innovation, exchange, and maintenance of property are all possible because of ______.

private property rights

This ______ table lists the different combinations of pizza and robots that can be produced with a specific set of resources.

production possibilities

A ______ lists the different combinations of two products that can be produced with a specific set of resources, assuming full employment.

production possibilities table

The "invisible hand" guides firms and resource suppliers to promote ______ even as they seek to further their own interests.

public or social interests

The function of firms in the circular flow model is to ______ resources and ______ products.

purchase; sell

Direct controls ----the marginal cost of production because firms must operate and maintain pollution control equipment.

raise

Negative externalities, such as pollution, ______ the utility of those affected.

reduce

Competition is the ______ mechanism of the market system, whereas the system of prices and markets is the organizing and ______ mechanism.

regulatory; coordinating

A firm's owners are called ______ because they are only paid after employees, suppliers, and lenders have been paid.

residual claimants

When an economy produces a good such that the marginal benefit equals the marginal cost, this indicates that ______.

resources are being allocated efficiently

Arable land, water, machinery, and professional athletes are all considered economic--- used in the production of goods and services.

resources, categories, factors, or inputs

Government subsidies decrease producers' costs, shifting the supply curve to the ______ and correcting the ______ of resources by producers.

right; underallocation

Land and mineral resources, transportation and communication facilities, factories and farm buildings, equipment, tools and machinery are all examples of _______.

scarce economic resources

When every economic unit in a society attempts to achieve its own particular goal, usually requiring delivering something of value to others, it is referred to as ______.

self-interest

When government subsidizes producers, it is attempting to ______.

shift supply to the right

An increase in income will ______.

shift the budget line to the right

The ratio of the price of two goods on a graphed budget line is measured by its

slope

Rather than produce a wide array of goods and services, it is more efficient for economies to produce goods and services based upon ______.

specialization

__(one word) is the use of resources by an individual, firm, region, or nation to produce one or a few goods or services rather

specialization

A(n)---- to a producer is a payment from the government to decrease the producer's cost in order to encourage more output of a product deemed beneficial to society. (Remember to type only one word in the blank.)

subsidy

An economic system will promote progress by advancing ______ and accumulating ______.

technology; capital

Goods and services are produced efficiently when production is organized in combinations and ways ______.

that minimize the cost per unit of output

Your next-door neighbors want to go on a European vacation but cannot afford it, so they decide to visit a local amusement park instead. This is an example of ______.

the economizing problem

Direct controls on pollution raise the marginal cost of production because ______.

the firms must purchase, operate, and maintain pollution-control equipment

___ provides goods to correct a positive externality where positive externalities are extremely large.

the goverment

Product and resource prices in a market system are determined by ______.

the interaction between buyers and sellers

The outward bowing shape of the production possibilities curve is due to ______.

the law of increasing opportunity costs

The optimal allocation of resources occurs when ______.

the marginal benefit of the good equals the marginal cost

In a market economy, goods and services are distributed ______.

to consumers on the basis of their ability and willingness to pay the existing market price

Trade-offs arising from limited resources give rise to: opportunity costs

trade-off; an opportunity

True or false: Efficiency losses are reductions of combined consumer and producer surplus associated with both underproduction and overproduction of a product.

true

True or false: In a market system, consumers exercise consumer sovereignty, which is crucial in determining the types and quantities of goods purchased.

true

Government can correct the ______ of resources by subsidizing consumers of the product.

underallocation

In the marketplace, what is a good that is used together with another good?

- A complementary good

Which of the following would most likely lead to a decrease in demand?

- A decrease in the number of buyers

Which exemplifies a pair of complementary goods?

- A hot dog and relish

In the marketplace, what is a good that can be used in place of another good called?

- A substitute good

Which statement about demand and supply is true?

- An increase in consumer income is likely to increase the demand for a normal good.

Which of the following causes consumers to buy larger quantities of a product at each possible price?

- An increase in the number of buyers.

What are two goods called when a change in the price of one good has little or no effect on the demand for the other?

- Independent goods

The inverse relationship between price and quantity demanded can be graphically illustrated by ______.

- a downward sloping curve

A ______ good is one that is used together with another good.

- complementary

When the price of a product falls, demand for its substitute will _______.

- decrease

If the birthrate increases, the purchase of baby products is likely to ______.

- increase

Other things equal, if consumers believe that gas prices will rise in a week, the demand for gas today will ______.

- increase

When the price of Coke rises, the demand for Pepsi is likely to ______.

- increase

"My income increased because of a substantial raise; therefore I decreased my consumption of Spam." This statement best exemplifies the relationship between income and a(n) ______ good.

- inferior

As people's income increases, the demand for ______ goods goes up but the demand for ______ goods goes down.

- normal; inferior

All the following are the determinants of demand except ______

- price of substitutes in production

The price of ______ goods is a determinant of demand.

- related

Select all that apply Which of the following statements are true?

-A decrease in consumers' income would decrease the demand for a normal good. -An increase in the price of a normal good would decrease the quantity demanded of the good.

The concept of demand can be summarized by a schedule or curve showing the quantity of a product that would be ______.

-A large number of buyers and sellers -Standardized products

Which of the following are the characteristics of a competitive market? (Check all that apply.)

-A large number of buyers and sellers -Standardized products

Select all that apply Which of the following are subsidies to consumers to correct for an underallocation of resources by producers?

-A tax credit for purchasing an electric car -A discount coupon to inoculate children against classic childhood diseases

Select all that apply Which of the following exemplify self-interest?

-A worker interviews for and is offered several positions and chooses the one that pays the most. -The owner of an apartment building rents the apartments for the highest rent possible. -A business owner focuses on using environmentally friendly processes while maximizing profits.

Select all that apply Select all of the reasons why completely eliminating pollution may be undesirable.

-Additional actions to reduce pollution will lower society's well-being because total cost will rise more than total benefit. -At some point, marginal cost (MC) may rise so high that it exceeds society's marginal benefit (MB) of further pollution abatement.

Which of the following exemplifies a change in buyers' tastes?

-An increase in demand for digital cameras over 35mm cameras.

Which of the following is likely to cause an increase in the demand for a good or service?

-An increase in the number of buyers

Select all that apply In which of the following cases the demand for a normal good would likely increase? (Check all that apply.)

-An increase in the number of buyers -A decrease in the price of complementary goods

A rightward shift of the production possibilities curve of an economy represents which of the following?

-An increase in the quantity of resources -Economic growth

Which of the following are ways of expressing the meaning of ceteris paribus? (Check all that apply.)

-Assuming other things remain constant -Assuming factors other than those being considered in a particular analysis do not change

Which of the following scenarios are illustrated in the given production possibilities curve?

-Attainable combinations of both goods below the curve - An economy in full employment along the curve

Select all that apply How does the profit system guide entrepreneurs?

-By punishing them with losses when they choose poorly -By rewarding them with profits when they choose wisely

Select all that apply Which of the following best describe how goods and services should be produced?

-By utilizing the right mix of labor and capital -By locating production facilities optimally to hold down production and transportation expenses

Select all that apply In which of the following ways do capital goods differ from consumer goods?

-Capital goods satisfy consumer wants indirectly by facilitating the production of consumer goods. -Consumer goods satisfy wants directly.

Which concepts or terms refer to the notion that all variables except those under immediate consideration are held constant for a particular analysis? (Check all that apply.)

-Ceteris paribus -The other-things-equal assumption

Specializing and participating in international trade allows an economy to do which of the following?

-Circumvent the output limits imposed by its own production possibilities curve -Increase the quantities of capital and consumer goods available to society

Select all that apply Which of the following are direct controls that have been used by the US government to address pollution?

-Clean-water legislation -Emission standards -Toxic-waste laws

Which of the following combinations are attainable given a consumer's budget line?

-Combinations that fall on the budget line -Combinations that fall inside the budget line

Select all that apply The government can correct for a situation in which negative externalities result in the overallocation of resources by using which of the following types of interventions?

-Direct controls -Pigovian taxes

Select all that apply Identify policies for coping with the overallocation of resources caused by negative externalities.

-Direct controls -Taxes on producers

Select all that apply Which of the following are examples of changing resource supplies?

-Discovery of new resources -Improvements in labor quality -Population growth

Select all that apply Which of the following collectively direct resources to industries that are meeting consumer wants and away from industries that are not meeting consumer wants?

-Dollar votes -Consumer sovereignty

Select all that apply Which of the following markets are more likely to experience positive externalities?

-Education -Immunizations

Select all that apply What do combinations of output that fall inside the production possibilities curve represent?

-Goods that are attainable -Less total output than points on the curve

Select all that apply Solar panels provide a benefit those who buy them by reducing their electricity bill, but they also benefit society as a whole by reducing pollution and resource consumption. Because producers calculate demand based on actual purchases rather than total benefit, solar panels are underproduced. Which types of government intervention could be used to counter this situation?

-Government provision -Subsidies

Select all that apply Which of the following occur in the resource market?

-Households provide economic resources directly as workers or entrepreneurs. -Households sell resources and businesses buy them. -Businesses buy resources from households because they are necessary for producing goods and services.

Which of the following affects the demand for normal goods and inferior goods?

-Income

Select all that apply Which of the following are effects of adverse selection on the insurance industry?

-Insurance premiums go up. -The insurance pool is dominated by high risk.

Select all that apply What does the central planning board appointed by a command system government do?

-It makes decisions about the composition and distribution of output. -It makes all decisions concerning the use of government-owned systems. -It determines production goals for each enterprise

Select all that apply Which of the following are resources which businesses purchase from households?

-Labor -Entrepreneurial ability -Capital -Land

Which of the following would increase the demand for goods and services in the United States?

-Large-scale immigration

The ______ is consistent with common sense because people ordinarily do buy more of a product at a lower price.

-Law of demand

Select all that apply Which of the following are made possible because of private property rights in a market system?

-Maintenance of property -Investment -Economic growth -Innovation

A demand curve shows the ______.

-inverse relationship between price and quantity demanded for a product

Select all that apply Which of the following does competition imply?

-No insurmountable barriers prevent an industry from expanding or contracting. -It enables the economy to adjust to changes in consumer tastes, technology, and resource availability. -It provides the economy with the flexibility needed to remain efficient over time

Which of the following are signs of a market failure?

-Overallocation of resources -Underallocation of resources

Select all that apply The market system attracts inputs and focuses owners' attention on risk management by restricting business risk to which two groups?

-Owners -Investors

Select all that apply Which steps has the government taken to address the problem of inadequate buyer information about sellers in the gasoline market?

-Passing laws against false or misleading advertising -Establishing a system of weights and measures -Employing inspectors to check for accuracy of pumps

Select all that apply Which of the following exemplify a decrease in the demand for goods due to a decrease in the number of buyers?

-People leaving the small towns where they grew up to look for job opportunities -People retiring and leaving the cities where they worked

Select all that apply Which of the following are solutions that governments use to counter overproduction caused by negative externalities?

-Pigovian taxes -Direct controls

Select all that apply Which of the following are methods that private businesses can use to overcome information difficulties without government intervention?

-Product warranties -Franchising

Select all that apply Which of the following are achieved at the equilibrium quantity of a good or service?

-Productive efficiency -Allocative efficiency

Select all that apply Which of the following are found in the product market?

-Services -Goods

Human specialization or division of labor contributes to a society's output in which of the following ways?

-Specialization makes use of differences in ability. -Specialization saves time. -Specialization fosters learning by doing.

Select all that apply Which of the following best describe the reasons that specialization increases the total output society derives from limited resources?

-Specialization saves time. -Specialization fosters learning by doing. -Specialization makes use of differences in ability

Select all that apply Which government interventions can be used to counter underproduction caused by positive externalities?

-Subsidies -Government provision

Select all that apply Identify policies for coping with the underallocation of resources associated with positive externalities.

-Subsidies to producers -Subsidies to consumers -Government provision

The ______ suggests that at lower prices, buyers have an incentive to substitute less expensive products for similar products that are now relatively more expensive.

-Substitute effect

Select all that apply Which of the following types of goods affect the demand for another product due to a change in their price? (Select all that apply)

-Substitute goods -Complementary goods

Select all that apply Which of the following functions can a corporation do on its own behalf?

-Sue others -Own assets -Incur debts -Acquire resources

An entrepreneur does which of the following?

-Takes the risk of commercializing new products -Makes strategic business decisions that set the course of an enterprise -Innovates

Select all that apply Freedom of entry and exit of producers enables an economy to adjust to changes in which of the following areas?

-Technology -Consumer tastes -Resource availability

Which of the following are illustrated by the following figure? (Check all that apply.)

-That the resources used to produce industrial robots and pizzas are not perfectly flexible and interchangeable. -That as one moves to the right and produces more pizzas, the number of robots that must be given up rises.

Select all that apply Which of the following describes a technological advancement?

-The ability of a firm or entrepreneur to gain revenue and economic profit at the expense of rivals by introducing a popular new product -New and improved methods that reduce production and/or distribution costs -The ability to produce better products and processes to replace inferior ones

Choose those characteristics that best describe a command system.

-The government owns most property resources. -A central planning board makes all economic decisions concerning resources.

Which of the following roles does the government play in the type of capitalism practiced in the United States?

-The government provides the rules for economic activity. -The government modifies the distribution of income. -The government provides certain goods and services that otherwise would be under-produced or not produced at all. -The government promotes economic stability and growth.

Which of the following statements or questions are examples of normative economics?

-The government should increase the minimum wage. -What should the minimum wage be? -The government ought to bail out distressed banks.

Select all that apply Which are reasons for changes in buyer tastes?

-The introduction of products -The results of health studies -The development of new technology

Select all that apply Which of the following are likely to occur if the technology for pollution-control equipment improves noticeably?

-The marginal cost curve of abatement would shift rightward. -The cost of pollution abatement would fall. -The optimal quantity level of abatement would rise.

Select all that apply Which of the following best describe the virtue of efficiency?

-The market encourages the development and adoption of new and more efficient production techniques. -The market system promotes the efficient use of resources by guiding them into the production of the goods and services most wanted by society.

Select all that apply Which of the following describe the market system's virtue of incentives? (Check all that apply.)

-The market system promotes the efficient use of resources by encouraging the development and adoption of new production techniques. -The market system encourages skill acquisition and hard work, leading to increased production and incomes and higher standards of living. -The market system leaves participants free to further their own self-interest, and any rewards or penalties are imposed by the market system itself.

Select all that apply Which of the following correctly states why advanced technology and capital goods are important? (Check all that apply.)

-The most direct methods of producing a good or service are often the least efficient. -The new technology can enhance the productivity of workers.

Select all that apply Which of the following would be likely to happen in a society that decided it wanted cleaner air and water because of new information about the adverse health effects of pollution?

-The optimal quantity level of pollution control would increase. -The marginal benefit (MB) curve of abatement would shift rightward.

Select all that apply Which of the following are pressures that make government more likely to produce undesirable economic outcomes?

-The pressure to be elected and earn reelection -The pressure to accrue benefits to firms in the politician's home state

Select all that apply Which of the following are the effects of a subsidy to producers?

-The supply curve shifts to the right because of an increase in supply. -The quantity of the product increases to the economically optimal quantity, eliminating the underallocation of resources. -The subsidy reduces the marginal cost of producing the good.

Which of the following statements or questions exemplify positive economics? (Check all that apply.)

-The unemployment rate in Mexico is higher than in the United States. -As flight ticket prices fall, airlines experience an increase in revenue.

Which statements best describe the combinations of goods that lie on the production possibilities curve?

-They are attainable. -They utilize all of an economy's available resources.

Select all that apply Which of the following statements describe who will get the goods and services produced in a market economy? (Check all that apply.)

-Those who have sufficient income and want to spend money on a particular good -Those who are willing and able to pay for the goods and services

What are the functions of an entrepreneur?

-To combine the resources of land, labor and capital to produce a good or service -To make strategic business decisions

As individuals' incomes rise, they will still be confronted with which of the following?

-Trade-offs -Choices -Opportunity cost

True or false: The law of demand can be supported by the income effect.

-True

Which of the following does competition require?

-Two or more buyers and two or more sellers acting independently in a particular market -Freedom of sellers and buyers to enter or leave markets

Identify the five fundamental questions that all economies, whether market or command, must address.

-What goods and services will be produced? -How will the system promote progress? -How will the system accommodate change? -Who will get the goods and services? -How will the goods and services be produced?

Select all that apply Which of the following are situations in which governments likely to intervene in markets?

-When community interests are at stake -When externalities affect large numbers of people

Select all that apply Which of the following illustrates the relationship between a good and its complement?

-When the price of lettuce increases, the demand for salad dressing decreases. -When the price of tuition decreases, the demand for textbooks increases.

Which are major decisions that must be addressed by an economic system?

-Which goods are produced -How to promote technological progress -Who gets the goods that are produced

The willingness and ability of a consumer to buy a normal product falls because of ______.

-a fall in income

All markets that have downward-sloping demand curves and upward-sloping supply curves yield----and ----surplus. (Remember to type only one word per blank.)

-buyer -seller

Select all that apply Capital accumulation refers to the accumulation of ______.

-capital goods that are required to advance technology -capital goods that yield even greater profit income in the future -capital goods that are used to produce consumer goods

Select all that apply The command economies of the former Soviet Union and of Eastern Europe failed due to:

-coordination problems. -incentive problems

An unfavorable change in consumer tastes and preferences for a product will ______ demand, which is illustrated as a shift of the demand curve to the ______.

-decrease; left

Select all that apply Competition among economic units ______.

-diffuses economic power within the businesses and households that make up the economy. -implies that producers can enter or leave an industry

Consumers experience ______ marginal utility the more they consume of a particular good or service.

-diminishing

Consumers will only buy additional units of a good if the price of the good is reduced is an example of ______.

-diminishing marginal utility

The "other-things-equal" assumption is important in the law of demand because ______.

-factors in addition to price affect the amount of a product purchased

Select all that apply Three virtues of the market system include ____, _____, and _____

-incentives -efficiency -freedom

The vast majority of goods that are not related to one another are called ______ goods.

-independent

Products that have decreased demand when consumer incomes rise and increased demand when consumer incomes fall are called ______ goods.

-inferior

Which of the following are general categories economists use to classify economic resources?

-labor -capital -land -entrepreneurial ability

Which of the following are examples of capital goods?

-large-scale factories -machinery -tools

The income effect indicates that a ______ price increases the purchasing power of income, enabling consumers to purchase ______ of a product and vice versa.

-lower; more

Upon receiving a substantial raise, Jessie increased her monthly consumption of beef. This information best exemplifies the relationship between income and a(n) ______.

-normal good

Intellectual property is an extension of property rights through:

-patents -trademarks -copyrights

Which of the following are components of the circular flow model?

-product market -resource market -businesses -households

All competitive markets involve which of the following?

-quantity -demand -price -supply

Due to the substitution effect, buyers have an incentive to buy less expensive products in place of similar products that have become ______.

-relatively more expensive

If prices for a good or service are expected to increase in the future, demand for that good or service will ______ today. If prices are expected to decrease in the future, demand will ______ today.

-rise; fall

The five questions that every society must address reflect the reality of (scarce/infinite) resources in a world of (limited/unlimited) wants.

-scarce -unlimited

When a product's demand varies directly with money income, it is considered a(n) ______ good.

-superior

Substitute goods and complementary goods refer to which determinant of demand?

-the price of related goods

Select all that apply Private individuals and businesses are able to utilize property as they wish as a result of:

-the right of private property. -the ability to negotiate legally binding contracts.

Select all that apply Monies that flow out of businesses to pay for resources are costs to businesses, but they represent which of the following types of flows to households?

-wages -interest -profit income -rent

In order to have competition in a market economy, there must be at least _____ or more sellers acting independently in a particular market.

2

Which of the following could give rise to a negative externality?

A coal generated power plant

Which term describes a situation in which the first party to a contract possesses information not known to the second and, as a result, the second party incurs major costs?

Adverse selection

What does every point on a budget line graph represent?

All combinations of goods that can be purchased with a given income

What is achieved when output is produced at the point at which maximum willingness to pay exactly equals the minimum acceptable price?

Allocative efficiency

What causes the shift in the supply curve for a firm targeted by a Pigovian tax?

An increase in marginal cost

What is a situation in which one party to a market transaction possesses substantially more information than the other party?

Asymmetric information

Which of the following is a resource that lending institutions can use to overcome information problems when considering a loan application?

Credit bureaus

What is the shape of the marginal benefit curve for pollution reduction?

Downward sloping

True or false: Specialization means using available resources to produce a variety of goods and services.

False

In the circular flow model, households sell resources to, and buy products from _______.

Firms

A market system allows entrepreneurs and workers to further their own self-interests, subject to the rewards and penalties that the system imposes. Which of the following virtues of the market system does this describe?

Freedom

Which of the following enables owners to employ or dispose of their property and money as they see fit?

Freedom of choice

Which of the following ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services?

Freedom of enterprise

Which statement about freedom of enterprise and freedom of choice is true?

Freedom of enterprise and freedom of choice have legal limitations.

Division of labor that works on a regional or international basis is known as__ (one word) specialization.

Geographic

How has government intervention in the gasoline market affected market participants?

It has benefited both buyers and sellers.

Which is considered to be "pure capitalism," in which the role of government is essentially limited to that of protecting private property and establishing a legal environment for enforcing contracts and market activity?

Laissez-faire capitalism

Which of the following is a policy approach to negative externalities?

Levying taxes or charges on the related good

Which of the following reduces producer surplus?

Lower prices

Which discipline studies the decision-making process of customers, workers, households, and business firms on an individual basis rather than as aggregates?

Microeconomics

The use of ______ in market systems facilitates the exchange of goods and services that specialization requires.

Money

In a market system, specialization requires exchange. Which of the following best describes the use of money in an exchange?

Money facilitates exchange by ending the need for a coincidence of wants required by the barter system.

What kind of market situation results in equilibrium output being larger than optimal output, leading to an overallocation of resources?

Negative externalities

Which of the following results in an overallocation of resources to the production of a good or service?

Negative externality

Which of the following is true when there are many buyers and sellers acting independently in a market?

No single buyer or seller can dictate the price of the product or resource because others can undercut that price.

As more and more of a particular good is produced, which of the following rises?

Opportunity costs

Points lying ______ the production possibilities curve represent greater, but unachievable levels of output with current inputs, than that at any point on the curve.

Outside

What is the coordinating mechanism in a market system?

Prices

____ ownership of capital gives capitalism its name.

Private

What is the difference between the actual price a seller receives and the minimum acceptable price?

Producer surplus

In which of the following markets do households buy the goods and services that businesses make available?

Product market

Which of the following illustrates the attainable combination of two goods that can be produced given a specific set of resources?

Production possibilities curve

What is achieved when competition forces producers to minimize the per-unit cost of the output they produce?

Productive efficiency

Entrepreneurs and owners of businesses use part of their ______ in order to accumulate more capital goods.

Profits

Mutually agreeable economic transactions take place as a result of:

Property rights

A specific tax applied to the producer of a good in order to correct a negative externality will cause what change to the market for that good?

Supply curve shifts left

What is the primary effect of the moral hazard problem on private markets?

Resources are underallocated to the good or service affected by moral hazard.

What is the cause of a society's increasing opportunity costs with respect to the production of goods?

Resources that are not fully interchangeable

The goods and services produced by an economic unit through ______ can be exchanged for a full range of desired products produced by other economic units

Specialization

____ increases the total output society derives from ______ resources.

Specialization; scarce

_____ economies must forgo some of one good to gain more of another, whereas ______ economies are able to increase production of both goods.

Static; dynamic

To encourage consumers to buy more energy-efficient appliances, the government offers cash rebates to consumers who purchase products that have received Energy Star certification. This is an example of which type of government intervention?

Subsidies to buyers

Which type of government intervention is likely to result in the demand curve shifting to the right (outward)?

Subsidies to buyers

Which type of government intervention seeks to increase the supply of a beneficial good?

Subsidies to producers

Which curve shows the seller's minimum acceptable price for each unit of the product?

Supply curve

In order to cope with the difficulties in coordinating the production of goods and services, central planners in the former Soviet Union took which of the following actions?

Suppressed product variety

Suppose an economy produces consumer goods and capital goods. Its current combination of production involves a higher level of capital goods than consumer goods. Which of the following can be inferred from this current choice on its production possibilities curve?

That its present choice in production may result in higher future prospects for economic growth

The name of the 1776 book authored by Adam Smith noting that the operation of a market economy creates unity between private and social interests is called ______.

The Wealth of Nations

Who owns most property resources in a command system?

The government

Select all that apply A market system decides what to produce based on which of the following.?

The movement of resources toward an industry that exhibits continued profits from producing a good or service Continued economic profit from producing a good or service

How does adverse selection manifest itself in the insurance industry?

Those who are most likely to need insurance payouts are the most likely to purchase insurance.

What is the purpose of a Pigovian tax?

To discourage the production of a good that causes negative externalities

True or false: A decrease in income will shift the budget line to the left

True

True or false: A trade-off occurs when some quantity of production of a good is given up in order to produce another good.

True

True or false: At the equilibrium output, where the demand and supply curves intersect, marginal benefit equals marginal cost.

True

True or false: By specializing, economies in one region can produce more than their actual consumption capacity and therefore can trade their surpluses with other economies in other regions.

True

True or false: Markets that have downward-sloping demand curves and upward-sloping supply curves yield consumer and producer surplus.

True

True or false: A subsidy to a producer is a payment from the government to decrease the producers' cost to encourage more supply of a product beneficial to society.

True Reason: The government gives producers subsidies to reduce costs and increase the production of beneficial products.

Which of the following is the most efficient method of production?

Using a combination of labor, capital and technology

Diminishing marginal ______ states that, in any specific time period, buyers will derive less satisfaction from each additional unit of the product consumed.

Utility

Which of the following is determined by an economic system?

What goods are produced

Positive economics is concerned with ______, whereas normative economics deals with _____.

What is; and what should be

In which situation are buyers capable of taking advantage of sellers?

When buyers possess more information than sellers

In which situation are governments likely to use subsidies or government provision to achieve economic efficiency?

When positive externalities cause underproduction

When is allocative efficiency of a product achieved?

When the correct quantity of the product is produced relative to other goods and services

When are governments most likely to impose licensing restrictions in markets featuring inadequate buyer information about sellers?

When the marginal cost of obtaining information about sellers is excessively high

A production possibilities table illustrates that at any point in time ______.

a fully employed economy must sacrifice some amount of one good to obtain more of another good

The operation of ______ creates a curious unity between private interests and social interests

a market system

Entrepreneurs trying to maximize profits and minimize losses, property owners trying to get the highest price for the sale or rental of their resources, and workers trying to maximize their satisfaction by finding jobs that offer the best combination of wages, hours, benefits, and working conditions are all examples of ______.

acting in one's self-interest

Modern market economies usually have a(n) ______.

active, but limited, government

A form of economic efficiency called---- efficiency is achieved when the quantity of output at equilibrium is produced.

allocative

For a market system to maximize its potential, it must develop methods for ______.

assessing and managing risk

The creation of new products and production methods that completely destroys the market positions of firms that are wedded to existing products and older ways of doing business is called _____.

creative destruction

The market system directs resources to the production of goods and services that are the most desired by society. Which market system virtue does this reflect?

efficiency

Government provision refers to the government's providing a good or service for free in order to correct for ______.

extremely large positive externalities

True or false: Government could correct the overallocation of resources by subsidizing consumers of the product.

false Reason: Only when there is an underallocation of resources can the government correct it by subsidizing the consumers of the good or service.

True or false: When positive externalities occur, the market demand curve lies to the right of the total-benefits demand curve.

false Reason: The market demand curve lies to the left of (below) the total-benefits demand curve.

The result of positive externalities is that the market produces too ______ units of a product that could benefit society, resulting in producers ______ resources to that product.

few; underallocating

What do points on the demand curve represent?

marginal benefit

The intersection of the demand and supply curves at the equilibrium output indicates that ______.

marginal benefit equals marginal cost

Productive efficiency is achieved when production costs are _____.

minimized

In a market system, ______ create powerful incentives for firms to innovate and entrepreneurs to pioneer new products and processes.

monetary rewards

Economists do not include money as an economic resource because:

money produces nothing

Which term describes a situation in which a person or institution behaves more recklessly after they obtain contracts that shift the financial burden of bad outcomes onto others?

moral hazards

----surplus is the difference between the actual price a seller receives and the minimum acceptable price

producer

According to the circular flow model, households buy goods and services that businesses make available in the ---market.

product

The interaction between buyers and sellers in a market system determines ______.

product and resource prices

Points on the ----curve represent marginal cost.

supply

The seller's minimum acceptable price at each unit of the product forms a point on the---- curve, also known as the marginal cost curve. (Remember to type only one word in the blank.)

supply

Private bargaining, markets for externality rights, specific taxes, liability rules and lawsuits, and direct controls are all examples of methods for correcting ____

the overallocation of resources caused by negative externalities

Some individuals do not directly consume a product but accrue indirect benefits from others who do consume the product. As a result, there is a(n) ___

underallocation of resources to the beneficial product

Private bargaining, subsidies to producers, subsidies to consumers, and government provisions are all ways for correcting the ______ of resources associated with ______ externalities.

underallocation; positive

When positive externalities exist, demand curves fail to reflect the willingness to pay of the people who receive the positive externality, resulting in products being ______.

underproduced

For better or worse, people have ______.

virtually unlimited wants