Macroeconomics Exam 1

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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


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