ECONO 2202 CH 2

In economic​ terminology, the inputs used to make goods and services are referred to as A. factors of production. Your answer is correct. B. real output. C. intangibles. D. durables and nondurables.

factors of production.

Vocab

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free market

A market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed.

Factor market

Factor market A market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.

absolute advantage

The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.

Market A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade

market

For market mechanism to work in response to changes in consumers' wants _______________

prices must be flexible.

The principle of increasing marginal opportunity cost states that the more resources devoted to any​ activity, the​ __________ the payoff to devoting additional resources to that activity. A. smaller Your answer is correct. B. greater C. more instant D. more proportional

smaller

trade

the act of buying and selling

Product market

Product market A market for goods—such as computers—or services—such as medical treatment.

​[Related to the Chapter​ Opener] In addition to making​ cars, Tesla planned to open a new factory in Nevada in 2016 to make​ batteries, including home storage battery packs. ​Source: Mike Ramsey and Anne​ Steele, "Tesla Loss Widens as Spending​ Jumps," Wall Street Journal​, May​ 6, 2015. The opportunity cost of​ Tesla's investment in a new battery factory in Nevada is A. measured in terms of the competition Telsa will present to exisiting firms. B. equal to the cost of inventory for the new battery factory. C. what the company considered to be the best foregone option to the factory. Your answer is correct. D. indeterminate since their plans are not detailed well enough.

what the company considered to be the best foregone option to the factory.

Entrepreneur

Someone who operates a business, bringing together the factors of production—labor, capital, and natural resources—to produce goods and services.

circular flow diagram

A model that illustrates how participants in markets are linked.

Production possibilities frontier (PPF)

Production possibilities frontier (PPF) A curve showing the maximum attainable combinations of two goods that can be produced with available resources and current technology.

According to Adam​ Smith, which of the following is necessary for the proper functioning of the market​ system? A. For markets to​ work, people and the government need to coordinate their decisions. B. For markets to​ work, the government should help citizens make the right decisions. C. For markets to​ work, people should take into account how their decisions affect society as a whole. D. For markets to​ work, people must be free to pursue their​ self-interest. Your answer is correct. According to Adam​ Smith, which of the following is the instrument the invisible hand uses to direct economic​ activity? A. government regulations B. costs C. prices Your answer is correct. D. financial markets

For markets to​ work, people must be free to pursue their​ self-interest. prices

What is the outcome of enforcing contracts and property rights in a market​ system? A. no effect on economic activity B. an unpredictable but definite effect on economic activity C. increased economic activity Your answer is correct. D. decreased economic activity If a market system functions​ well, which of the following is necessary for the enforcement of contracts and property​ rights? A. action by government to prevent the exercise of certain property rights B. an independent court system Your answer is correct. C. powerful political connections D. All of the above.

increased economic activity an independent court system

Two​ neighbors, countries A and​ B, produce books and​ blankets, among other goods and services.​ However, Country A produces more of both goods than country B. A student of​ economics, Maya, also notes that in both​ countries, these industries individually employ 30 percent of the population. She concludes that country A has an absolute advantage in the production of books and blankets over country B. ​Maya's conclusion is flawed because A. she assumes that country​ A's population is no larger than country​ B's. Your answer is correct. B. she assumes that both countries have linear production possibilities frontiers. C. she assumes that country A has more liberal trade policies than country B. D. she assumes that country A does not face increasing marginal opportunity cost when shifting resources from one industry to the other. E. she assumes that the productivity of workers in both countries is identical.

she assumes that country​ A's population is no larger than country​ B's.

What is a free​ market? A. A free market is one without property rights. B. A free market is one with perfect equality. C. A free market is one where the government restricts how a factor of production can be employed. D. A free market is one where the government does not control the production of goods and services. Your answer is correct. E. A free market is one where the government restricts how a good or service can be produced. In what ways does a free market economy differ from a centrally planned​ economy? Unlike a free market​ economy, A. centrally planned economies have no government. B. centrally planned economies have no government restrictions. C. centrally planned economies do not trade internationally. D. centrally planned economies have extensive government controls. Your answer is correct. E. centrally planned economies do not use money.

A free market is one where the government does not control the production of goods and services. centrally planned economies have extensive government controls.

Comparative advantage

Comparative advantage The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

In a famous essay on the market​ system, the economist Leonard Read discussed how a pencil sold by the U.S. firm Eberhard Faber Pencil Company​ (now owned by Paper​ Mate) was made. He noted that logging companies in California and Oregon grew the cedar wood used in the pencil. The wood was milled into​ pencil-width slats at a factory in San​ Leandro, California. The graphite for the pencil was mined in Sri Lanka and mixed with clay purchased from a firm in Mississippi and wax from a firm in Mexico. The rubber was purchased from a firm in Indonesia. ​Source: Leonard E.​ Read, ​I, Pencil: My Family Tree as told to Leonard E. Read​, ​Irvington-on-Hudson, NY: The Foundation for Economic​ Education, Inc. December 1958. Which of the following statements is​ true? A. As long as the CEO of the Eberhard Faber Company had this knowledge about the​ components, that is sufficient. B. Each of the managers of all of the firms that participated in the making of the pencils had to know how the components they produced were used to make pencils. C. According to Adam​ Smith's "circular​ flow" metaphor, only the managers need to know this information. D. It was not necessary for the managers of any of firms that participated in the making of the pencils to know how the components they produced were used to make pencils.

It was not necessary for the managers of any of firms that participated in the making of the pencils to know how the components they produced were used to make pencils.

What is the​ circular-flow diagram and what does it​ illustrate? A. The​ circular-flow diagram shows the maximum attainable combinations of two products that may be produced with available resources and current technology. B. The​ circular-flow diagram shows how households and firms are linked through product and factor markets. Your answer is correct. C. The​ circular-flow diagram shows how households and firms are linked through product markets. D. The​ circular-flow diagram shows how firms are linked through product and factor markets. E. The​ circular-flow diagram shows the​ government's role in markets through taxes and transfer payments.

The​ circular-flow diagram shows how households and firms are linked through product and factor markets.

During the 1928 presidential election​ campaign, Herbert​ Hoover, the Republican​ candidate, argued that the United States should only import those products that could not be produced here. Do you believe that this would be a good​ policy? Explain. A. This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage. Your answer is correct. B. This is a good policy because countries would only produce those goods that cannot be made elsewhere. C. This is a good policy because countries would only produce those goods that they can make at lower opportunity cost than other countries. D. This is not a good policy because it does not necessarily result in countries producing those goods for which they have an absolute advantage. E. This is not a good policy because it does not allow countries to import those goods that are scarce.

This is not a good policy because it does not necessarily result in countries producing those goods for which they have a comparative advantage.

After Russia seized what had formerly been the Ukrainian territory of Crimea in February​ 2014, the United States and many other countries imposed economic sanctions that reduced the ability of Russia to engage in international trade. A columnist writing in the New York Times noted​ that, ​"If sanctions push Russia onto a path of greater​ self-reliance, its manufacturing and service industries will surely grow​ faster...." ​Source: Anatole​ Kaletsky, "Reasons to Welcome a Ukraine​ Deal," New York Times​, September​ 18, 2014. If the columnist is correct about the effect of the​ sanctions, then, in the long​ run, the sanctions will A. decrease the economic​ well-being of the average Russian because Russia will have to produce some goods and services at a higher cost than its trading partners. Your answer is correct. B. increase the economic​ well-being of the average Russian because there will more employment to meet the needs of the growing manufacturing sector. C. decrease the economic​ well-being of the average Russian because there will be lost markets. D. increase the economic​ well-being of the average Russian because its manufacturing and service industries will surely grow faster.

decrease the economic​ well-being of the average Russian because Russia will have to produce some goods and services at a higher cost than its trading partners.

If you and your neighbor both grow oranges and grapefruits and you are better than your neighbor at picking both oranges and​ grapefruits, there can be no advantage to you in specializing in growing only one type of fruit and trading with your neighbor for the other. A. True B. False

false

Writing in the New York Times​, Michael Lewis argued that ​"...a market economy is premised on a system of incentives designed to encourage an ignoble human​ trait: self-interest." ​Source: Michael​ Lewis, "In Defense of the​ Boom." New York​ Times, October​ 27, 2002. What incentives does a market system provide to encourage​ self-interest? A. Financial reward. Your answer is correct. B. Selfishness. C. Equity. D. Government sanctions. E. Both a and b.

financial reward

The production possibilities frontiers depicted in the diagram to the right illustrate A. both the labor force and capital stock decreasing. B. the likely result of a ground war. C. both the labor force and capital stock increasing. Your answer is correct. D. technological advances in the tank industry.

both the labor force and capital stock increasing.

What is the basis for​ trade? A. Economic growth. B. Available resources. C. Comparative advantage. Your answer is correct. D. Absolute advantage. E. Efficiency. How can a country gain from specialization and​ trade? A. A country can specialize in producing that for which it has an absolute advantage and then trade for other needed goods and services. B. A country can specialize in producing that which is most scarce and then trade for other needed goods and services. C. A country can specialize by using all available resources to invest in capital goods to promote economic growth. D. A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services. Your answer is correct. E. A country can specialize by using all available resources to produce goods and services to avoid trading with other countries.

comparative advantage A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.

The Scottish philosopher Adam Smith argued in 1776 that A. unions would do a better job of coordinating the activities of buyers and sellers than prices could. B. prices would do a better job of coordinating the activities of buyers and sellers than guilds could. Your answer is correct. C. prices would do a better job of coordinating the activities of buyers and sellers than markets could. D. guilds would do a better job of coordinating the activities of buyers and sellers than prices could.

prices would do a better job of coordinating the activities of buyers and sellers than guilds could.

The basis for trade is comparative advantage.

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Alzania produces and consumes​ 500,000 tons of cotton during a year. Reports indicate that​ Alzania's neighbor, which also employs the same number of people in the cotton​ industry, consumed​ 400,000 tons of cotton. This led industry experts to believe that Alzania had an absolute advantage in the production of cotton over its neighbor. Which of the​ following, if​ true, could weaken this​ view? A. Workers in Alzania have higher productivity due to better education and training. B. ​Alzania's neighbor exported half its production of cotton that year. Your answer is correct. C. Alzania is a closed economy. D. The cotton industry in Alzania is heavily regulated by the government. E. ​Alzania's neighbor has been producing cotton longer than Alzania.

​Alzania's neighbor exported half its production of cotton that year.

What is the role of an​ entrepreneur? A. to operate a business that produces a good or service B. to take risks C. to bring together the factors of production—​labor, ​capital, and natural resources D. All of the above.

all of the above

The British historian Thomas Macaulay once remarked that copyrights are​ "a tax on​ readers." Copyrights are a​ 'tax' on readers in the sense that the government collects the tax progressively to promote fairness in the tax code. securing a new copyright requires the payment of a fee to the government by the artist. copyrights limit of the supply of related creative work which results in higher prices. Your answer is correct. the government explicitly adds a sales tax on creative works to cover the copyright. If copyrights are a​ 'tax' on​ readers, governments provide a legal framework to enforce them because A. the government collects a large amount of revenue from the tax. B. copyrights provide needed protection for authors and creators of movies or other artistic works. Your answer is correct. C. the government likes to tax the people any chance it gets. D. the government needs to solve its debt problem by enacting new taxes.

copyrights limit of the supply of related creative work which results in higher prices. B. copyrights provide needed protection for authors and creators of movies or other artistic works.

In​ economics, the term capital refers to A. goods used to produce other goods. Your answer is correct. B. the difference between a​ firm's assets and its liabilities. C. financial resources used by businesses to hire resources. D. the process of raising funds through the sale of stocks and bonds.

goods used to produce other goods.

Using the same amount of​ resources, suppose that Nicaragua can produce twice as much wheat as Colombia.​ Nevertheless, Colombia could still have the comparative advantage in producing wheat if A. its currency is more than double the value of​ Nicaragua's currency. B. its productivity in sugar is twice the productivity Nicaragua possesses in sugar. C. it negotiates trade agreements that assign it the comparative advantage in wheat. D. it is even less efficient than Nicaragua in the production of goods other than wheat.

it is even less efficient than Nicaragua in the production of goods other than wheat.

The late Nobel​ Prize-winning economist Kenneth Arrow of Stanford University once wrote that the argument that the outcomes in a market​ system, "may be very different​ from, and even opposed​ to, intentions is surely the most important intellectual contribution that economic thought has​ made." ​Source: Kenneth J.​ Arrow, "Economic​ Equilibrium," Encyclopedia of the Social Sciences​, 1968. Encyclopedia.com.​ (May 23,​ 2015). It is possible for the outcomes in a market system to be different from what firms and consumers intended them to be because A. both firms and consumers are directly interested in increasing economic efficiency and the standard of living of the average person. B. most firms and consumers do not really understand the market system. C. neither firms nor consumers are directly interested in increasing economic efficiency or the standard of living of the average person. Your answer is correct. D. firms and consumers do not directly communicate. This idea is an important intellectual contribution because A. the interaction of firms and consumers in markets produces outcomes that are economically efficient and that promote the economic growth that results in rising living standards. Your answer is correct. B. if it were not for the interaction of firms and consumers in​ markets, a central planning body would have to organize the market. C. without the interaction of firms and consumers in​ markets, there would be few goods and services produced. D. most consumers and firms have the same​ objective, which is to increase economic efficiency and the standard of living of the average person.

neither firms nor consumers are directly interested in increasing economic efficiency or the standard of living of the average person. the interaction of firms and consumers in markets produces outcomes that are economically efficient and that promote the economic growth that results in rising living standards.

A number of political leaders have expressed concern about the​ nation's decline as a major steel producer. Many have advocated policies to restrict imports and promote domestic production. These individuals would see their position weakened most by the knowledge that A. the government has historically shown limited ability to promote the production of any good. B. the substitution of domestic steel for foreign steel absorbs resources that would otherwise produce goods of greater value. Your answer is correct. C. foreign governments have generally not​ supported/subsidized production in their countries. D. many products using steel can be produced with aluminum instead. E. steel production is a​ high-pollution activity.

the substitution of domestic steel for foreign steel absorbs resources that would otherwise produce goods of greater value.

The chapter mentions that in 1965 married women with children worked an average of 32 hours per week while men worked an average of only 4 hours on housework—a total of 36 hours of housework. In​ 2016, the estimated average weekly hours of housework for women declined to​ 15.7, while the hours worked by men increased to about 9.7—a total of 25.4 hours of housework. ​Source: U.S. Bureau of Labor​ Statistics, "American Time Use—​2016," June​ 27, 2017. Does the decrease in the total number of hours of housework—from 36 to 25.4—mean that families are willing to live in messier​ homes? A. ​No, because there are more labor saving devices so less time is required. Your answer is correct. B. ​Yes, because families are too busy now to worry about a clean house. C. ​No, because women have just decided to let men do more work. D. ​Yes, because homes are larger now and would require more hours of housework to keep a home clean.

​No, because there are more labor saving devices so less time is required.

Use the following production possibilities frontier for a country to answer the following questions. Which​ point(s) are​ unattainable? Briefly explain why. Points W​, X​, and Y because they are on the production possibilities frontier. Point Z because it is inside the production possibilities frontier. All the points because the production of each has an opportunity cost. Point V because it is outside the production possibilities frontier. Your answer is correct. None of the points because they all are feasible. Which​ point(s) are​ efficient? Briefly explain why. Points Z​, W​, X​, and Y because they are attainable. Point W because it is where the most resources are used to produce capital goods. Point Z because it is inside the production possibilities frontier. Points W​, X​, and Y because this is where maximum output is produced with available resources. Your answer is correct. Point V because it is where the most capital and consumption goods combined are produced. Which​ point(s) are​ inefficient? Briefly explain why. A. Point Z because production there is not using all available resources. Your answer is correct. B. Points W​, X​, Y​, and V because they are unattainable. C. Point V because it is unattainable. D. Points W​, X​, and Y because they are on the production possibilities frontier. E. Points Z​, W​, X​, and Y because they are attainable. At which point is the​ country's future growth rate likely to be the​ highest? Briefly explain why. A. Point X because it is an efficient point where a mix of capital and consumption goods are produced. B. Point Y because it is where the most resources are used to produce consumption goods. C. Point Z because it is where resources are saved for investments. D. Point W because it is where the most resources are used to produce capital goods. Your answer is correct. E. Point V because it is where the production possibilities frontier will shift with growth.

1. Point V because it is outside the production possibilities frontier. 2. Points W​, X​, and Y because this is where maximum output is produced with available resources. 3. Point Z because production there is not using all available resources. 4. Point W because it is where the most resources are used to produce capital goods.

Which of the following events would create economic​ growth, that​ is, shift the production possibilities frontier​ outward? A. An increase in technology that affects the production of both goods. B. An increase in the available natural resources. C. An increase in the available labor. D. All of the above.

All of the above.

Suppose we can divide all the goods produced by an economy into two​ types: consumption goods and capital goods. Capital​ goods, such as​ machinery, equipment, and​ computers, are goods used to produce other goods. Is it likely that the production possibilities frontierLOADING... in this situation would be a straight​ line: LOADING... click on the icon for an example or bowed​ out: LOADING... click on the icon for an​ example? A. The production possibilities frontier would likely be a straight line because not all resources are equally well suited to produce both consumption and capital goods. B. The production possibilities frontier would likely be bowed out because resources are likely equally well suited to produce both consumption and capital goods. C. The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods. Your answer is correct. D. The production possibilities frontier would likely be a straight line because resources are likely equally well suited to produce both consumption and capital goods.

C. The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods.

Choco Dream is a firm that produces both dark chocolates as well as liquor chocolates. During a given​ month, the firm uses its resources to produce both varieties.​ Initially, the firm produced​ 5,000 bars of dark chocolates and​ 4,000 bars of liquor chocolates in a month. In order to increase production of the latter to​ 4,500, they had to reduce production of dark chocolates by 800 bars. When demand for liquor chocolates increased​ further, Choco Dream produced​ 5,000 bars of liquor chocolates and​ 3,200 bars of dark chocolates per month. Which of the following inferences can be drawn from the given​ information? A. Resources are equally productive in the production of both types of chocolates. B. Both types of chocolates sold by Choco Dream are equally popular among consumers. C. The company is operating at one end of the PPF. D. Choco Dream faces increasing marginal opportunity cost in the production of liquor chocolates. Your answer is correct. E. Choco​ Dream's production possibilities frontier is linear.

Choco Dream faces increasing marginal opportunity cost in the production of liquor chocolates.

Factors of production

The inputs used to make goods and services.

Economic growth

Economic growth The ability of the economy to increase the production of goods and services.

Two​ neighbors, countries A and​ B, produce books and​ blankets, among other goods and services.​ However, Country A produces more of both goods than country B. A student of​ economics, Maya, also notes that in both​ countries, these industries individually employ 30 percent of the population. She concludes that country A has an absolute advantage in the production of books and blankets over country B. Which of the​ following, if​ true, would weaken​ Maya's conclusion? A. Country A has more productive resources than country B. B. Country A has a lower opportunity cost of producing books while country B has a lower opportunity cost of producing blankets. C. Country A is an open economy while country B is a closed economy. D. Country A employs more capital per unit of labor in all industries than country B. Your answer is correct. E. Country A has a linear production possibilities frontier.

Country A employs more capital per unit of labor in all industries than country B.

What do economists mean by​ scarcity? A. Economists mean that the economy is unable to produce increasing quantities of goods and services. B. Economists mean that trade is not possible. C. Economists mean that unlimited wants exceed limited resources. Your answer is correct. D. Economists mean that production is inefficient. E. Economists mean that people are not employed. Which of the following is not scarce according to the economic​ definition? A. Healthcare services. B. Time. C. Workers. D. Gas. E. None of the above.

Economists mean that unlimited wants exceed limited resources. None of the above.

What is an​ entrepreneur? A. Entrepreneurs are policymakers in the government. B. Entrepreneurs manage households that consume goods and services. C. Entrepreneurs manage the free market. D. Entrepreneurs operate businesses that produce goods and services. Your answer is correct. E. Entrepreneurs regulate profits. Why do entrepreneurs play a key role in a market​ system? A. They influence income distribution through taxes and transfer payments. B. They supply labor as a factor of production. C. They bring together factors of production. Your answer is correct. D. They determine what goods and services are produced. E. They determine who will receive goods and services.

Entrepreneurs operate businesses that produce goods and services. They bring together factors of production.

What are the two main categories of participants in​ markets? A. Firms and banks. B. Firms and households. Your answer is correct. C. Households and the government. D. Domestic participants and international participants. E. Households and entrepreneurs. Which participants are of greatest importance in determining what goods and services are​ produced? A. The financial sector. B. Entrepreneurs. C. Households. Your answer is correct. D. The government. E. Firms.

Firms and households. Households.

What does increasing marginal opportunity costs​ mean? A. Increasing the production of a good requires smaller and smaller decreases in the production of another good. B. Production is not occurring on the production possibilities frontier. C. The economy is unable to produce increasing quantities of goods and services. D. Increasing the production of a good requires decreases in the production of another good. E. Increasing the production of a good requires larger and larger decreases in the production of another good. Your answer is correct. What are the implications of this idea for the shape of the production possibilities​ frontier? A. The production possibilities frontier will have a positive slope. B. The production possibilities frontier will be bowed outward. Your answer is correct. C. The production possibilities frontier will have a negative slope. D. The production possibilities frontier will be a straight line. E. The production possibilities frontier will be bowed inward.

Increasing the production of a good requires larger and larger decreases in the production of another good. The production possibilities frontier will be bowed outward.

As part of their budget tightening​ process, many states are cutting aid to colleges and​ universities, with students being asked to pick up a bigger part of the escalating tab of higher education. Which of the following would do the most to enable you to cope with those higher expenses without impairing your progress toward a​ degree? A. Obtaining a​ part-time job. B. Aggressively pursuing​ loans, grants, and benefactors. C. Forming a student lobbying group to protest the budget cuts. D. Taking fewer classes per semester or classes with lower associated expenses. E. Reducing your consumption of goods and services not essential to your education.

Reducing your consumption of goods and services not essential to your education.

Suppose we can divide all the goods produced by an economy into two​ types: consumption goods and capital goods. Capital​ goods, such as​ machinery, equipment, and​ computers, are goods used to produce other goods. Is it likely that the production possibilities frontierLOADING... in this situation would be a straight​ line: LOADING... click on the icon for an example or bowed​ out: LOADING... click on the icon for an​ example? A. The production possibilities frontier would likely be a straight line because resources are likely equally well suited to produce both consumption and capital goods. B. The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods. Your answer is correct. C. The production possibilities frontier would likely be bowed out because resources are likely equally well suited to produce both consumption and capital goods. D. The production possibilities frontier would likely be a straight line because not all resources are equally well suited to produce both consumption and capital goods.

The production possibilities frontier would likely be bowed out because not all resources are equally well suited to produce both consumption and capital goods.

XYZ​ firm, the leading producer of leather goods in its country is planning to expand its business. Industry experts identify Asia as a potential target market. They report that substitute​ products, particularly in​ India, are highly priced.​ Darren, the operational​ head, feels that exporting their product to India is a good idea. According to​ him, their price advantage alone will ensure good sales.​ However, his​ colleague, Mark, who is also the head of product​ development, feels that Darren is too​ optimistic, and that this venture may not turn out to be as profitable as Darren expects it to be. ​Darren's view is based on which of the following​ assumptions? A. The quality of the domestically produced substitutes is not as good as​ XYZ's product. B. India has high import tariffs. C. Consumers in India are extremely loyal to national brands. D. Imports in India usually exceed exports from the country. E. ​XYZ's product is a close substitute for the locally available goods.

XYZ's product is a close substitute for the locally available goods.

A production possibilities frontier​ (PPF) is A. a curve showing the generally attainable combinations of two products that may be produced with all planned or​ potential, yet undeveloped technology. B. a curve that illustrates the demand of two goods for the average consumer. C. a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology. Your answer is correct. D. a curve that shows the potential productive capabilities of the frontier​ (defined as the area outside of​ cities) of a developing economy.

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

increasing marginal opportunity costs video

as the economy moves down the ppf, it experiences increasing marginal oopportunity costs why? because some workers, machines, and other resources are better suited to one use than another **The more resources already devoted to an activity, the smaller the payoff to devoting additional resources to that activity

If country ABC can produce a unit of good 1 by sacrificing fewer units of good 2 than can country​ XYZ, it is correct to say that country ABC A. has an absolute advantage in producing good 1. B. will import good 1. C. has a comparative advantage in producing good 1. D. will not wish to trade good 1 with country XYZ.

has a comparative advantage in producing good 1. A country has an absolute advantage in producing a good if it does so with fewer resources compared to other countries.

Suppose an increasing number of school districts across the country find themselves with too few teachers at a time of rising enrollments and calls for improved outcomes in terms of student performance. A​ market-based remedy for this emerging mismatch between the availability of teachers and school​ districts' needs would likely emphasize A. a relaxation of​ state-imposed teacher certification requirements for individuals who lack the credential of a formal degree in education but nevertheless possess knowledge and experience that qualifies them to teach. B. renegotiating contracts with​ teachers' unions to increase the productivity​ (workload) of teachers. C. enhancements to the financial support​ (scholarships, grants,​ loans) undergraduates receive for pursuing degrees in education. D. higher compensation to elicit both a larger quantity of teacher services and a greater reliance by districts on​ non-traditional instruction methods.

higher compensation to elicit both a larger quantity of teacher services and a greater reliance by districts on​ non-traditional instruction methods.

On the diagram to the​ right, movement along the curve from points A to B to C illustrates A. increasing marginal opportunity costs. Your answer is correct. B. constant marginal opportunity costs. C. reflexive marginal opportunity costs. D. decreasing marginal opportunity costs.

increasing marginal opportunity costs.

In the diagram to the​ right, point F indicates an A. efficient result. B. unattainable result. C. inefficient result.

inefficient result.

Whether carried out by an individual or a​ country, production beyond the production possibilities frontier A. is not physically possible. Your answer is correct. B. can occur by acquiring more productive resources. C. is possible only through trade. D. happens as a result of forced saving. With respect to​ consumption, individuals and countries A. ​can, by choosing not to save for the​ future, consume beyond their production possibilities frontiers. B. can consume beyond their production possibilities frontiers only during periods of economic prosperity. C. ​can, through​ trade, consume beyond their production possibilities frontiers. Your answer is correct. D. are contrained to consume on or inside their production possibilities frontiers.

is not physically possible. can, through​ trade, consume beyond their production possibilities frontiers.

The late Nobel​ Prize-winning economist Kenneth Arrow of Stanford University once wrote that the argument that the outcomes in a market​ system, "may be very different​ from, and even opposed​ to, intentions is surely the most important intellectual contribution that economic thought has​ made." ​Source: Kenneth J.​ Arrow, "Economic​ Equilibrium," Encyclopedia of the Social Sciences​, 1968. Encyclopedia.com.​ (May 23,​ 2015). It is possible for the outcomes in a market system to be different from what firms and consumers intended them to be because A. neither firms nor consumers are directly interested in increasing economic efficiency or the standard of living of the average person. Your answer is correct. B. both firms and consumers are directly interested in increasing economic efficiency and the standard of living of the average person. C. firms and consumers do not directly communicate. D. most firms and consumers do not really understand the market system. This idea is an important intellectual contribution because A. most consumers and firms have the same​ objective, which is to increase economic efficiency and the standard of living of the average person. B. if it were not for the interaction of firms and consumers in​ markets, a central planning body would have to organize the market. C. the interaction of firms and consumers in markets produces outcomes that are economically efficient and that promote the economic growth that results in rising living standards. Your answer is correct. D. without the interaction of firms and consumers in​ markets, there would be few goods and services produced.

neither firms nor consumers are directly interested in increasing economic efficiency or the standard of living of the average person. without the interaction of firms and consumers in​ markets, there would be few goods and services produced.

Some economists have been puzzled that although entrepreneurs take on the risk of losing time and money by starting new​ businesses, on average their incomes are lower than those of people with similar characteristics who go to work at large firms. William Baumol believes part of the explanation for this puzzle may be that entrepreneurs are like people who buy lottery tickets. On​ average, people who​ don't buy lottery tickets are left with more money than people who buy tickets because lotteries take in more money than they give out. Baumol argues that​ "the masses of purchasers who grab up the​ [lottery] tickets are not irrational if they receive an adequate payment in another​ currency: psychic​ rewards." ​Source: William J.​ Baumol, The Microtheory of Innovative​ Entrepreneurship, Princeton,​ NJ: Princeton University​ Press, 2011. The term​ "psychic rewards" refers to A. gains attained by​ "out psyching"​ one's foes. B. financial payments that boost​ one's psyche. C. rewards that accrue from the use of psychic powers. D. nonmonetary forms of remuneration that are psychologically uplifting. Your answer is correct. Psychic rewards that an entrepreneur might receive include ​(check all that ​apply)​: A. the pride of​ self-accomplishment. Your answer is correct. B. being​ one's own boss. Your answer is correct. C. stock options. D. status within the community.

nonmonetary forms of remuneration that are psychologically uplifting. A. the pride of​ self-accomplishment. Your answer is correct. B. being​ one's own boss. Your answer is correct. D. status within the community.

The production possibilities frontiers depicted in the diagram to the right illustrate A. increases in both the labor force and capital stock. B. technological advances in the tank industry. Your answer is correct. C. technological advances in the automobile industry. D. technological advances in both the tank and automobile industries.

technological advances in the tank industry.

One of the great benefits of trade is A. that it makes it possible for society to become better off if​ individuals, firms, and countries specialize in producing goods and services for which they have an absolute advantage. B. that it makes it possible for society to become better off by increasing its consumption. Your answer is correct. C. that it makes it possible for society to become better off by increasing its production but not its consumption. D. that it provides society what it desires most in life even if it does not enhance the means for achieving its goals.

that it makes it possible for society to become better off by increasing its consumption.

Prepping for a​ next-day exam over the course of an evening​ (and possibly into the wee hours of test​ day) poses increasing costs since A. tutors charge higher rates after 7 p.m. B. the longer you choose to study will result in an increase in the number and value of foregone activities. Your answer is correct. C. evenings are a less productive time to study compared to daylight hours. D. studying productivity declines sharply as the effort extends through the evening.

the longer you choose to study will result in an increase in the number and value of foregone activities.

In colonial​ America, the population was spread thinly over a large​ area, and transportation costs were very high because it was difficult to ship products by road for more than short distances. As a​ result, most of the free population lived on small farms where they not only grew their own food but also usually made their own clothes and very rarely bought or sold anything for money. Why were the incomes of these farmers likely to rise as transportation costs​ fell? As transportation costs​ fell, A. the farmers gained access to new markets and customers. Using absolute​ advantage, the farmers produced those goods that they could make the most of. As they traded for other​ goods, their incomes and living standards increased. B. the farmers gained access to new markets and customers. Using comparative​ advantage, the farmers​ specialized, producing those goods for which they had lower opportunity cost. As they traded for other​ goods, their incomes and living standards increased. Your answer is correct. C. production costs decreased. The farmers then were able to produce more of​ everything, often selling excess goods in the market for money. With income from​ trade, living standards increased. D. the farmers gained access to new markets and customers. Examining​ shortages, the farmers produced those goods that were most scarce. As they traded for other​ goods, their incomes and living standards increased. E. production costs decreased. Using comparative​ advantage, the farmers then were able to​ specialize, producing more of those goods for which they had higher opportunity​ cost, selling excess goods in the market for money. With income from​ trade, living standards increased.

the farmers gained access to new markets and customers. Using comparative​ advantage, the farmers​ specialized, producing those goods for which they had lower opportunity cost. As they traded for other​ goods, their incomes and living standards increased.

In a free​ market, the actions people take are largely determined by A. the​ "visible hand" of central planning. B. restrictions placed by the government. C. the motivation of equity. D. the motivation of financial reward. Your answer is correct. E. the guild system.

the motivation of financial reward.

Part 2 of 2 Which of the following are the two key groups of participants in the circular flow of​ income? A. government and financial institutions B. domestic residents and foreign residents C. savers and borrowers D. households and firms Your answer is correct. In a simple​ circular-flow model, there are flows of​ _________ and flows of​ _________. A. factors of​ production; goods and services B. funds received from the sale of factors of​ production; spending on final goods and services C. Both​ (a) and​ (b) are correct. Your answer is correct. D. None of the​ above; there are no flows in the circular flow of income.

households and firms Both​ (a) and​ (b) are correct.

In the court case over whether anyone could use​ Doyle's character of Sherlock Holmes without paying a​ fee, Judge Posner argued that the first Sherlock Holmes story was written in​ 1887, so allowing the​ author's descendants to continue to claim a copyright to the character raised the possibility of​ "perpetual, or at least nearly​ perpetual, copyright." The judge also noted that the U.S. Constitution had only given Congress the authority to grant copyright for a limited time. ​Source: Leslie S. Kling v. Conan Doyle​ Estate, Ltd ​(7th Cir.​ 2014), media.ca7.uscourts.gov. Allowing an author and his or her descendants to have a copyright forever on a book or character has disadvantages​ including: A. the reduction of new​ books, movies, and television series based on existing characters that results from copyright periods. Your answer is correct. B. the inability to track the heirs and descendants to pay the copyright. C. the problems associated with terminating the copyright after so many years have passed. D. lost revenue from competing authors. Allowing an author and his or her descendants to have a copyright forever on a book or character has advantages​ including: A. revenue that generates tax payments. B. decreased payments to some authors using other​ authors' characters to produce new books. C. incentives that it provides for writers to write books that they might not have written. Your answer is correct. D. a more fully developed cast of characters that can be used in future books.

the reduction of new​ books, movies, and television series based on existing characters that results from copyright periods. Incentives that it provides for writers to write books that they might not have written.

Which of the following are examples of intellectual​ property? ​(Check all that​ apply.) A. Books and films Your answer is correct. B. All​ non-natural resources C. Pure air and water D. Software Your answer is correct. E. Ideas for new products or new production techniques Your answer is correct. The government seeks to protect intellectual property rights by granting A. patents. B. copyrights. C. franchises. D. All of the above. E. A and B only.

A. Books and films Your answer is correct. D. Software Your answer is correct. E. Ideas for new products or new production techniques Your answer is correct. A and B only

Lawrence Summers served as secretary of the treasury in the Clinton administration and as director of National Economic Council in the Obama administration. He has been quoted as giving the following moral defense of the economic approach. ​"There is nothing morally unattractive about​ saying: We need to analyze which way of spending money on health care will produce more benefit and which​ less, and using our money as efficiently as we can. I​ don't think there is anything immoral about seeking to achieve environmental benefits at the lowest possible​ costs." ​Source: David​ Wessel, "Precepts from Professor​ Summers," Wall Street Journal​, October​ 17, 2002. It would be more moral to reduce​ pollution, A. not taking the cost into account because pollution is potentially harmful to our health. B. taking the cost into account because the total cost of reducing pollution is likely enormous. C. taking the cost into account because money spent on pollution reduction is not available for other worthy activities. Your answer is correct. D. not taking the cost into account because pollution reduction is typically associated with large benefits. E. taking the cost into account because reducing pollution often reduces economic growth.

C. taking the cost into account because money spent on pollution reduction is not available for other worthy activities.

Choco Fantasy is a firm that produces both dark chocolates as well as liquor chocolates. It can produce​ 10,000 bars of dark chocolate per month if all its resources are used to produce only this variety.​ Similarly, using all its resources in the production of liquor​ chocolates, the firm can produce​ 8,000 bars per month.​ However, during a given​ month, the firm produces both varieties. Which of the​ following, if​ true, would suggest that the firm is operating on its​ PPF? A. The opportunity cost of shifting resources from the production of liquor chocolates to dark chocolates is marginal. B. In an attempt to cut​ costs, the company is planning to fire its unproductive resources. C. Most domestic consumers prefer the better quality Swiss chocolates imported by the country. D. Even though the demand for both liquor and dark chocolates has​ increased, the company can increase the production of only one variety. Your answer is correct. E. Medical reports earlier this year indicated that higher chocolate consumption increases the risk of heart attack.

Even though the demand for both liquor and dark chocolates has​ increased, the company can increase the production of only one variety.

XYZ​ firm, the leading producer of leather goods in its country is planning to expand its business. Industry experts identify Asia as a potential target market. They report that substitute​ products, particularly in​ India, are highly priced.​ Darren, the operational​ head, feels that exporting their product to India is a good idea. According to​ him, their price advantage alone will ensure good sales.​ However, his​ colleague, Mark, who is also the head of product​ development, feels that Darren is too​ optimistic, and that this venture may not turn out to be as profitable as Darren expects it to be. Which of the​ following, if​ true, will strengthen​ Darren's point of​ view? A. Foreign trade is heavily regulated by the Indian government. B. India is an emerging market and some of the foreign brands that have sold electronics in India have been doing extremely well. C. Indian producers do not have access to the technology that XYZ uses for producing leather goods. Your answer is correct. D. Indian consumers are loyal to their national brands. E. Consumers in India are becoming increasingly critical of manufacturing processes that involve animal cruelty.

Indian producers do not have access to the technology that XYZ uses for producing leather goods.

Suppose the United Kingdom and Norway both produce oil and fish​ oil, which are sold for the same prices in both countries. The following table shows combinations of both goods that each country can produce in a​ day, measured in thousands of​ barrels, using the same amounts of capital and​ labor: Who has the comparative advantageLOADING... in producing​ oil? A. Norway has a comparative advantage producing oil because it can produce more oil. B. Norway has a comparative advantage producing oil because its opportunity cost of producing oil is lower. C. Neither country has a comparative advantage producing oil because their opportunity costs of producing oil are equal. Your answer is correct. D. The United Kingdom has a comparative advantage producing oil because it can produce more oil. E. The United Kingdom has a comparative advantage producing oil because its opportunity cost of producing oil is lower. Can these two countries gain from trading oil and fish​ oil? A. These countries cannot gain from trade because neither has a comparative advantage producing either good. Your answer is correct. B. These countries can gain from trade because Norway has an absolute advantage producing oil. C. These countries cannot gain from trade because neither has an absolute advantage producing either good. D. These countries can gain from trade because their opportunity costs of producing each good are the same. E. These countries can gain from trade because The United Kingdom has an absolute advantage producing fish oil.

Neither country has a comparative advantage producing oil because their opportunity costs of producing oil are equal. These countries cannot gain from trade because neither has a comparative advantage producing either good.

Property rights

Property rights The rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.

relative price

The price of a specific good or service in comparison to the prices of other goods and services.

Evaluate the following​ argument: "Adam​ Smith's analysis is based on a fundamental​ flaw: He assumes that people are motivated by​ self-interest. But this​ isn't true. ​ I'm not​ selfish, and most people I know​ aren't selfish." A. This statement is based on the misconception that​ Smith's analysis applies to every aspect of life. B. This statement is based on the misconception that​ Smith's analysis provides no role for government guidance. C. This statement is based on the misconception that​ Smith's analysis applies to firms and households. D. This statement is based on the misconception that following your​ self-interest and being selfish are the same thing. Your answer is correct. E. This statement correctly identifies how​ Smith's analysis ignored charitable acts of giving and benevolence.

This statement is based on the misconception that following your​ self-interest and being selfish are the same thing. Your answer is correct.

The primary difference between absolute and comparative advantage is A. absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost. Your answer is correct. B. absolute advantage can never change while comparative advantage depends on the relative cost of a​ good's resources. C. absolute advantage is a concept that was utilized in communist countries and comparative advantage is a capitalist idea. D. absolute advantage refers to the ability to produce a good or service at a lower opportunity cost and comparative advantage refers to the ability to produce more of a good or service using the same amount of resources.

absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.

The primary difference between product markets and factor markets is that A. product markets are markets for factors of production—​labor, ​capital, natural​ resources, and entrepreneurial​ ability, while factor markets are markets for goods and services. B. product markets are generally after factor markets in the distribution chain. C. product markets produce goods for final sale while the output of factor markets is included in the purchase price of the good itself—factors are not sold. D. product markets are markets for​ goods, while factor markets are markets for factors of production—​labor, ​capital, natural​ resources, and entrepreneurial ability.

product markets are markets for​ goods, while factor markets are markets for factors of production—​labor, ​capital, natural​ resources, and entrepreneurial ability.

A free market exists A. only in fiction. There are no markets or economies which even come close to approaching the status of a free market. B. when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed. Your answer is correct. C. when the government places absolutely no restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed. D. when the government places significant restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.

when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.

A production possibilities​ frontier: A. shows the act of buying and selling. B. shows how participants in the market are linked. C. shows the market for a good or service. D. shows the maximum attainable combinations of two goods that may be produced with available resources. Your answer is correct. E. shows how unlimited wants exceed the limited resources available to fulfill those wants. We can show economic​ efficiency: A. with points inside the production possibilities frontier. B. with points on the production possibilities frontier. Your answer is correct. C. with points on and outside the production possibilities frontier. D. with points outside the production possibilities frontier. E. with points inside and on the production possibilities frontier. We can show economic​ inefficiency: A. with points on the production possibilities frontier. B. with points inside and on the production possibilities frontier. C. with points inside the production possibilities frontier. Your answer is correct. D. with points outside the production possibilities frontier. E. with points on and outside the production possibilities frontier. The production possibilities frontier will shift outward A. if resources are used to produce consumption goods. B. if production occurs outside the production possibilities frontier. C. if resources are not used in production. D. if technological advances occur. Your answer is correct. E. if resources are not used to produce capital goods.

1. shows the maximum attainable combinations of two goods that may be produced with available resources. 2. with points on the production possibilities frontier. 3. with points inside the production possibilities frontier. 4. if technological advances occur

Suppose the economy whose PPF is shown on the right experiences economic growth. ​1.) Use the​ 3-point curved line drawing tool to show how growth affects the​ trade-offs the country faces between producing ships and food. ​2.) Use the point drawing tool to draw and label a point on the new PPF that shows the economy producing more of both goods. Label this point​ 'B'. Carefully follow the instructions above and only draw the required objects. Which of the following may have caused the shift you have​ drawn? ​(Check all that​ apply.) A. Balanced production between ships and food. B. A larger labor force. Your answer is correct. C. The achievement of full employment. D. An increase in the capital stock. Your answer is correct. E. Advances in technology.

B. A larger labor force. Your answer is correct. D. An increase in the capital stock. Your answer is correct. E. Advances in technology.

Suppose the president is attempting to decide whether the federal government should spend more on research to find a cure for heart disease. What is the opportunity cost of spending more money to find a cure for heart​ disease? A. The reduction in future​ health-related costs of heart disease. B. The reduction in funding for research to cure other diseases. Your answer is correct. C. The cost of the​ Medicare/Medicaid program. D. The monetary value of a human life. E. The total explicit cost of the research to cure heart disease. How should policymakers determine the amount of money that should be allocated for research curing heart​ disease? They should base their decision on A. whether the last dollar devoted to research on heart disease results in more benefit than the last dollar spent on research for curing other diseases. Your answer is correct. B. the value of the total benefit of the research on heart disease. C. the number of people who die from heart disease compared to the number of people who die from other diseases. D. the value of the total benefit of research on curing other diseases. E. the number of people who have heart disease compared to the number of people who have other diseases.

B. The reduction in funding for research to cure other diseases. Your answer is correct. whether the last dollar devoted to research on heart disease results in more benefit than the last dollar spent on research for curing other diseases.

Choco Fantasy is a firm that produces both dark chocolates as well as liquor chocolates. It can produce​ 10,000 bars of dark chocolate per month if all its resources are used to produce only this variety.​ Similarly, using all its resources in the production of liquor​ chocolates, the firm can produce​ 8,000 bars per month.​ However, during a given​ month, the firm produces both varieties. Which of the​ following, if​ true, would suggest that the firm is operating at a point inside its​ PPF? A. The firm is paying overtime to its workers as most of them are working extra hours to meet the peak season demand. B. All resources employed by Choco Fantasy are always put to their best use. C. The firm believes in maintaining a certain amount of excess capacity to meet unexpected changes in demand. Your answer is correct. D. Current demand for both varieties is so high that similar chocolates are being imported by the country. E. The firm is planning to hire more resources because of an anticipated increase in the demand for its chocolates.

The firm believes in maintaining a certain amount of excess capacity to meet unexpected changes in demand.

What does increasing marginal opportunity costs​ mean? A. The economy is unable to produce increasing quantities of goods and services. B. Increasing the production of a good requires decreases in the production of another good. C. Increasing the production of a good requires smaller and smaller decreases in the production of another good. D. Production is not occurring on the production possibilities frontier. E. Increasing the production of a good requires larger and larger decreases in the production of another good. Your answer is correct. What are the implications of this idea for the shape of the production possibilities​ frontier? A. The production possibilities frontier will have a negative slope. B. The production possibilities frontier will be bowed inward. C. The production possibilities frontier will have a positive slope. D. The production possibilities frontier will be a straight line. E. The production possibilities frontier will be bowed outward.

Increasing the production of a good requires larger and larger decreases in the production of another good. The production possibilities frontier will be bowed outward.

XYZ​ firm, the leading producer of leather goods in its country is planning to expand its business. Industry experts identify Asia as a potential target market. They report that substitute​ products, particularly in​ India, are highly priced.​ Darren, the operational​ head, feels that exporting their product to India is a good idea. According to​ him, their price advantage alone will ensure good sales.​ However, his​ colleague, Mark, who is also the head of product​ development, feels that Darren is too​ optimistic, and that this venture may not turn out to be as profitable as Darren expects it to be. Which of the​ following, if​ true, would support​ Mark's point of​ view? A. The producers of the local substitute goods have long been lobbying for​ subsidies, but to no effect. B. Indian producers of substitute goods are using their resources efficiently. C. High prices of the locally produced leather items have prevented many consumers from being able to access them. D. It is fairly easy to do business in India because of limited bureaucratic control. E. India has high import tariffs.

India has high import tariffs

What is absolute​ advantage? A. The ability to use all available resources to produce output. B. The gain from selling a product for more than it costs to produce that product. C. The gain from consuming a product whose benefit is greater than its cost. D. The ability to produce more of a good or service than competitors using the same amount of resources. Your answer is correct. E. The ability to produce a good or service at a lower opportunity cost than other producers. What is comparative​ advantage? A. The ability to use all available resources to produce output. B. The gain from consuming a product whose benefit is greater than its cost. C. The ability to produce more of a good or service than competitors using the same amount of resources. D. The gain from selling a product for more than it costs to produce that product. E. The ability to produce a good or service at a lower opportunity cost than other producers. Your answer is correct. Is it possible for a country to have a comparative advantage in producing a good without also having an absolute​ advantage? A country without an absolute advantage in producing a good A. will have a comparative advantage if it devotes more resources toward that​ good's production. B. will not have a comparative advantage because it has fewer resources. C. will have a comparative advantage if it produces more efficiently. D. will have a comparative advantage if it has a lower opportunity cost of producing that good. Your answer is correct. E. will have a comparative advantage if it is able to produce that good at a low total cost.

The ability to produce more of a good or service than competitors using the same amount of resources. The ability to produce a good or service at a lower opportunity cost than other producers. Your answer is correct. will have a comparative advantage if it has a lower opportunity cost of producing that good.

Property rights are A. the rights government has to the exclusive use of all​ property, including the right to buy or sell it. B. the rights individuals or firms have to the exclusive use of their property within individual culturally defined norms which are inconsistent in each area of the United States. C. the rights individuals or firms have to the exclusive use of their​ property, excluding the right to buy or sell it. D. the rights individuals or firms have to the exclusive use of their​ property, including the right to buy or sell it.

the rights individuals or firms have to the exclusive use of their​ property, including the right to buy or sell it.

In The Wonderful Wizard of Oz and his other books about the Land of​ Oz, L. Frank Baum observed that if​ people's wants were modest​ enough, most goods would not be scarceLOADING.... According to​ Baum, this was the case in​ Oz: ​"There were no poor people in the Land of​ Oz, because there was no such thing as money... Each person was given freely by his neighbors whatever he required for his​ use, which is as much as anyone may reasonably desire. Some tilled the lands and raised great crops of​ grain, which was divided equally among the whole​ population, so that all had enough. There were many tailors and dressmakers and shoemakers and the​ like, who made things that any who desired them might wear. Likewise there were jewelers who made ornaments for the​ person, which pleased and beautified the​ people, and these ornaments also were free to those who asked for them. Each man and​ woman, no matter what he or she produced for the good of the​ community, was supplied by the neighbors with food and clothing and a house and furniture and ornaments and games. If by chance the supply ever ran​ short, more was taken from the great storehouses of the​ Ruler, which were afterward filled up again when there was more of any article than people needed... You will​ know, by what I have told you​ here, that the Land of Oz was a remarkable country. I do not suppose such an arrangement would be practical with us.​ " ​Source: L. Frank​ Baum, The Emerald City of Oz​, pp.​ 30-31, First edition published in 1910. Do you agree with Baum that the economic system in Oz​ wouldn't work in the contemporary United​ States? A. The system in Oz would work. There is no scarcity in Oz or in the United States. B. The system in Oz​ wouldn't work. Even without modest​ wants, goods are not scarce in the United States. C. The system in Oz would work. The United States has more resources than Oz to fulfill the​ people's wants. D. The system in Oz​ wouldn't work. The wants of people in the United States exceed the resources available to fulfill those wants. Your answer is correct. E. The system in Oz​ wouldn't work. People in the United States are less willing to give freely to their neighbors.

The system in Oz​ wouldn't work. The wants of people in the United States exceed the resources available to fulfill those wants.

State government Medicaid programs provide medical insurance to poor and disabled people. Under federal​ law, the programs must provide reimbursements to people who use any prescription drug that has been approved as effective by the U.S. Food and Drug Administration​ (FDA). In recent​ years, pharmaceutical firms have developed new prescription drugs that cost as much as​ $1,000 per pill to treat Hepatitis​ C, a liver disease. A news story notes​ that, "State Medicaid programs are particularly sensitive to annual cost​ increases...[because] coverage is paid​ for, in​ part, out of state​ budgets, which have to be balanced every​ year." ​Source: Joseph​ Walker, "Expensive Hepatitis C Medications Drive​ Prescription-Drug Spending," Wall Street Journal​, ​March, 10,​ 2015; and Margot​ Sanger-Katz, "$1,000 Hepatitis Pill Shows Why Fixing Health Costs Is So​ Hard," New York Times​, August​ 2, 2014. When new prescription drugs are introduced with much higher prices than existing​ drugs, state governments face a​ trade-off between A. a reduction in spending on another worthwhile program or an increase in taxes. Your answer is correct. B. those with Medicaid and those without Medicaid. C. the death of individuals from one type of illness compared to another. D. funding pharmaceutical firms and funding other firms. Do you agree with the federal law requiring that Medicaid programs must cover every drug that has FDA​ approval? A. ​No, because such spending is definitively not the best use of state​ governments' scarce resources. B. This is a positive economic issue that people will often disagree about. C. ​Yes, because such spending is definitively the best use of state​ governments' scarce resources. D. This is a normative economic issue that people will often disagree about.

a reduction in spending on another worthwhile program or an increase in taxes. This is a normative economic issue that people will often disagree about.

In the​ circular-flow diagram showing how a market system​ works, A. firms and households are both suppliers in product markets. B. income flows to firms and the government through factor markets. C. income flows to households through factor markets. Your answer is correct. D. households purchase output produced by firms in product and factor markets. E. households are demanders and firms are suppliers in factor markets.

income flows to households through factor markets. Your answer is correct.

A freelance​ singer-songwriter is planning the restoration of a recently purchased civil​ war-era farmhouse. While he professes an enjoyment​ of, and talent in the construction​ trades, the theory of comparative advantage implies that A. the value of what he imports​ (in this​ case, professional contractor​ services) must equal the value of what he exports​ (songs). B. he should concentrate on the restoration work since his​ out-of-pocket costs will be much lower than if he hires professionals. C. ​self-sufficiency is​ advantageous, hence he should split his time between music and construction. D. he ought to do as much of the work himself as possible since imports​ (in this​ case, professional contractor​ services) should always be restricted to those things that cannot be done internally. E. the income lost while away from music will likely exceed the savings realized by doing the work​ himself, thus, he should hire professionals to do the restoration work.

the income lost while away from music will likely exceed the savings realized by doing the work​ himself, thus, he should hire professionals to do the restoration work.

What are private property​ rights? Private property rights​ are: A. the rights individuals and firms have to the exclusive use of intellectual property but not​ tangible, physical property. B. the rights individuals but not firms have to the exclusive use of​ tangible, physical property and intellectual property. C. the rights individuals and firms have to the exclusive use of​ tangible, physical property but not intellectual property. D. the rights individuals and firms have to the exclusive use of​ tangible, physical property and intellectual property. Your answer is correct. E. the rights individuals have to the exclusive use of intellectual property and firms have to the exclusive use of​ tangible, physical property. What role do they play in the working of a market​ system? Private property​ rights: A. encourage a significant number of people to be willing to risk funds by investing them in business. B. encourage firms to spend money on research and development. C. determine what goods and services will be produced. D. are the basis for international trade. E. both a and b. Your answer is correct. Why are independent courts important for a​ well-functioning economy? Independence is necessary for​ courts: A. to make their decisions free of influence from people with powerful political connections. B. to make their decisions free of intimidation by criminal gangs. C. to make their decisions free of influence from other parts of the government. D. to make their decisions based on the law. E. all of the above.

the rights individuals and firms have to the exclusive use of​ tangible, physical property and intellectual property. both a and b. all of the above.

According to an article on​ Phillyburbs.com, some farmers in rural Pennsylvania are causing a​ "stink" by using pig manure for fertilizer. The farmers purchase the pig​ manure, which is an organic​ fertilizer, from a nearby pork processing plant and spread it across the fields where they grow corn and soybeans. The article asserts that the farmers switched to pig manure because of the skyrocketing price of chemical fertilizers. Some of the residents of​ Milford, however, have complained about the​ smell, but the​ "farmers are likely protected under​ Pennsylvania's Right to Farm​ Act, which allows farmers to engage in practices that are common to​ agriculture." ​Source: Amanda​ Cregan, "Milford Farmers Switch to Pig Manure Causing a Stink for​ Neighbors," Phillyburbs.com, March​ 6, 2013. In their switch to the organic pig manure​ fertilizer, farmers responded to A. the rising price of chemical fertilizers. Your answer is correct. B. rising incomes. C. rising prices of corn and soybeans. D. falling prices of pig manure. According to the Pennsylvania Right to Farm​ Act, do the farmers or the townspeople have the property rights to the smell of the air around the​ farms? (Some of the residents did ask the township to urge the farmers to​ plow-under the manure to reduce its​ stench.) According to the Pennsylvania Right to Farm​ Act, farmers have the property rights to the smell of the air around the farms because the Pennsylvania Right to Farm Act allows A. farmers to​ plow-under the manure to reduce its stench. B. farmers to engage in practices that are common to agriculture. Your answer is correct. C. townspeople to boycott the offending farmers. D. townspeople to complain

the rising price of chemical fertilizers. farmers to engage in practices that are common to agriculture. Your answer is correct.

Imagine that the next time the New England Patriots play the Miami Dolphins at Gillette Stadium in​ Foxborough, Massachusetts, Patriots star quarterback Tom Brady has a temporary lack of judgment and plans to sell Patriots memorabilia during the game because he realizes that he can sell five times more Patriots products than anyone in the stadium sports gear store.​ Likewise, imagine that you are a creative and effective manager at work and that you tell your employees that during the next six​ months, you plan to clean the offices because you can clean five times better than the cleaning staff. Both you and Tom are making an error in judgment by assuming that specialization should be based upon absolute advantage. You​ shouldn't necessarily do what you are better than anyone else at doing A. because it may not be your favorite activity. B. unless your advantage in that activity is greater than advantages you possess in other activities. Your answer is correct. C. because others may come to resent your superiority. D. because it detracts from your ability to become​ self-sufficient.

unless your advantage in that activity is greater than advantages you possess in other activities.

The people of a previously quiet and peaceful country have come to recognize the need to expand and improve their security forces after a wave of terroristic threats and acts. Considering their resource​ limitations, the extent to which security is enhanced will most likely be determined by A. funding availability. B. ​society's willingness to forego other goods and​ services, both public and private. Your answer is correct. C. the availability and expertise of trained​ anti-terror personnel. D. the willingness of those in power to restructure the current security​ apparatus, including the​ dismissal/reassignment of current security leadership. E. the​ public's tolerance of a potentially more intrusive state.

​society's willingness to forego other goods and​ services, both public and private.