Chapter 1 Assessment/Review Questions
why would expanding the nation's communications network be considered an increase in wealth, while improving the education of its people not be considered an increase in wealth?
WEALTH is the accumulation of products that are tangible, are scarce, have utility, and are transferrable from one person to another SERVICES (like education) are not wealth bc they are intangible. but, they are still useful/valuable
identify an example of each of the 4 factors of production required to produce a pencil
1. land- forests for the trees 2. capital-pencil factory machines/equipment 3. labor- factory workers, forest workers 4. entrepreneurs- produce a new innovative type of pencil
entrepreneurs can/cannot employ all four production factors
CANNOT they do something new w existing resources
why will economic models never be entirely reliable?
bc they are based on assumptions, or things we THINK are true. the quality of a model is no better than the assumptions on which it was based
one of the basic economic questions is FOR WHOM products are produced. in our society, how would that question be answered for a common consumer product such as a cell phone?
depending on the price, it would be produced for low income, middle income, or very rich people.
how does productivity relate to economic growth?
economic growth is made possible by having more resources or increased productivity. this causes the production possibilities frontier to expand outward
why does planning for economic growth, stability, full employment, and efficiency involve both risks and sacrifices?
it requires risk because no one knows the future, you are basing your decisions off the now. it is sacrifice bc it requires us to limit our current consumption
how are the roles of resource owners and firms explained by the circular flow diagram of economic activity?
they buy productive resources they sell goods and services they receive business income they give payments for resources
IN WHAT WAYS DO PEOPLE COPE WITH THE PROBLEM OF SCARCITY?
want more than we already have...... 1. economic growth (increase in the ABILITY to produce goods and services) more resources, better resources, better technology 2. reduce our wants and expectations- not a good option, not long term solution 3. use our existing resources wisely (Don't waste the few resources that we do have.) (Productive Efficiency, Allocative Efficiency, Full Employment, and Equity)