ECON EXAM CH 1-2

THE PRODUCTION POSSIBILITIES CURVE CAN SHIFT INWARD WHEN

a country experiences a natural disaster

WHEN THE PRESIDENT SAYS THAT HIGH INFLATION RATES ARE A MUCH MORE SERIOUS ECONOMIC PROBLEM THAN HIGH UNEMPLOYMENT ITS AN EXAMPLE OF

a normative statement

SCARCITY IS

a permanent human condition relative to the nearly limitless nature of human desires

THE DIFFERENCE BETWEEN POSITIVE STATEMENTS AND NORMATIVE STATEMENTS IS THAT

a positive statement is a statement of fact and a normative statement involves value judgements

IF AN INCREASE IN ONE VARIABLE CAUSES A DECREASE IN ANOTHER VARIABLE THIS IS

an example of an inverse relationship

WHICH OF THE FOLLOWING DESCRIBES THAT PEOPLE CANNOT EXAMINE EVERY POSSIBLE CHOICE AVAILABLE TO THEM BUT INSTEAD USE SIMPLE RULES OF THUMB TO SORT AMONG THE ALTERNATIVES THAT HAPPEN TO OCCUR TO THEM

bounded rationality

INCENTIVES

change the benefit or cost associated with an action

OBJECTIVE STATEMENTS

claim to describe the way things are

WHICH OF THE FOLLOWING IS TRUE OF INCENTIVES

different people are motivated by different incentives

MICROECONOMICS

focuses on components of the economy

MACROECONOMIC

focuses on overall economic behavior

A MODEL

illustrates the relationship between two variables

AN UPWARDS SLOPING LINE

indicates a positive relationship between the variables

A MAP IS AN EXAMPLE OF A MODEL BECAUSE A MAP

is a simplification of reality

THE SLOPE OF A LINE

is the ratio of the vertical change to the horizontal change as the graph is read from left to right

NORMATIVE STATEMENTS

propose the way things ought to be

OPPORTUNITY COST EXISTS BECAUSE OF

scarcity

IN THE PRODUCTION OF GOODS AND SERVICES TRADE OFFS EXIST BECAUSE

society has only a limited amount of productive resources

YOU HAVE THE OPTION OF CONSUMING ONE CUP OF COFFEE TWO DONUTS OR THREE ORANGES YOU PICKED THE CUP OF COFFEE THEREFORE THE OPPORTUNITY COST OF THIS CUP OF COFFEE IS

the donuts or the oranges whichever you like more

RESOURCES

the inputs that make production possible

A STRAIGHT-LINE PRODUCTION POSSIBILITIES CURVE TAKES THIS SHAPE BECAUSE

the opportunity cost of producing a good is constant

SCARCITY

the problem that human wants exceed the production possible with the limited resources available

ECONOMICS

the study of how individuals and societies use their limited resources to try to satisfy their unlimited wants

OPPORTUNITY COST CAN BE BEST DEFINED AS

the value of the next-highest-ranked alternative

SCARCITY EXISTS BECAUSE

there are not enough resources available to produce all the goods that people want

CONSIDER THE CASE OF A TEACHER WHO TELLS STUDENTS THAT THOSE WHO MISS MORE THAN THREE CLASSES FOR ANY REASON WILL AUTOMATICALLY RECEIVE A LOWER GRADE

this is an example of a negative incentive for students to attend class