Macroeconomics Exam 1
Which of the following statements about a simple circular flow diagram is false?
Households are neither suppliers or demanders in the financial capital market
The three fundamental questions that any economy must address are:
1. What goods and services to produce? 2. How will these goods and services be produced? 3. Who receives them?
Which of the following is an example of an activity undertaken by an entrepreneur?
Starting your own snow cone business
An Inquiry into the Nature and Causes of the Wealth of Nations" published in 1776 was written by
Adam Smith
What does the term "marginal" mean in economics?
An additional or extra
Ted quits his $60,000-a-year job to be a stay-at-home dad. What is the opportunity cost of his decision?
At least $60,000
Economics promotes which of the following as the way to make the best decision?
Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost
What is an economic model?
It is a simplified version of some aspect of economic life used to analyze an economic issue
Which of the following is a normative economic statement?
Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable
Which of the following is a positive economic statement?
Scarcity necessitates that people make trade-offs
Which of the following statements is true about scarcity?
Scarcity refers to the situation in which unlimited wants exceed limited resources
Who, in a command economy, decides what goods and services will be produced with the scarce resources available in that economy?
The government
How are the fundamental economic decisions determined in North Korea?
The government decides because North Korea is a command economy
Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy?
The government, consumers, and producers
Which of the following is a macroeconomics question?
What determines the inflation rate?
Which of the following is a microeconomics question?
What factors determine the price of carrots?
The Great Depression of the 1930s with a large number of workers and factories unemployed would be represented in a production possibilities frontier graph by
a point inside the frontier
An example of a factor of production is
a worker hired by an auto manufacturer.
Economics is the study of the _____________ people make to attain their goals, given their ______________ resources
choices; scarce
The ________ demonstrates the roles played by households and firms in the market system
circular flow diagram
The decision about what goods and services will be produced made in a market economy is made by
consumers and firms choosing which goods and services to buy or produce
Adam Smith introduced this idea by using the example of how the tasks of making a pin were divided in a pin factory
division of labor
The opportunity cost of taking a semester-long economics class is
equal to the highest value of an alternative use of the time and money spent on the class
Marginal utility is the
extra satisfaction received from consuming one more unit of production
Allocative efficiency is achieved when
firms produce the goods and services that consumers value most
Microeconomics is the study of
how households and firms make choices
The production possibilities frontier model shows that
if all resources are fully and efficiency utilized, more of one good can be produced only by producing less of another good
A point inside the production possibilities frontier represents
inefficient in that not all resources are being used
The cost incurred from the production of an additional unit of a product
is a marginal cost to the firm
In economics, the term ________ means "additional" or "extra."
marginal
The production possibilities frontier shows the _____________ combinations of two products that may be produced in a particular time period with available resources
maximum attainable
The highest valued alternative that must be given up to engage in an activity is the definition of
opportunity cost
Economists assume that
optimal decisions are made at the margin
Every society faces economic trade-offs. This means
producing more of one good means less of another good can be produced
A point on the production possibilities frontier represents
productive efficiency
When goods and services are produced at the lowest possible cost, _____________ occurs
productive efficiency
Households ____________ final goods and services in the ____________ market
purchase; goods and services
In economics, choices must be made because we live in a world of
scarcity
When workers of firms focus on particular tasks in the overall production process for which they are well-suited, it is called
specialization
Positive statements are
statements that describe the world as it is
Utility is
the level of satisfaction or pleasure that people receive from their choices
Which of the following is counted as "capital" in economics?
the machines workers have to work with
By definition, economics is the study of
the choices people make to attain their goals, given their scarce resources
Macroeconomics is the study of
the economy as a whole
If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of
the law of diminishing marginal utility
The idea in economics that "there is no free lunch" means that
there are opportunity costs when scarce resources are used for free lunches
A point outside the production possibilities frontier represents
unattainable with current resources
Marginal analysis involves undertaking an activity
until its marginal benefits equal marginal costs