Econ Quiz 1

Suppose someone asks these questions "How will I know if an economy is based on capitalism when I see it? What characteristic/s is (are) fundamental to any capitalist economy?" Which of the following best answers these questions?

1. A Capitalist economy is based on private property owned by individual households and businesses, and relies upon market competition to limit market power. 2. a capitalist economy depends on self-interest, market-determined prices and specialization to organize how resources are used

In economic therory the four categories of scarce resources in Factors Of Production are:

1.Land 2. Labor 3: Capital 4. Entrepreneurship

In our notes from class, we addressed the question, "What is an "Economic Policy?" An accurate response to this question is to say that an Economic Policy is a well-tested theory that can be used to understand the nature of an economic problem, and it suggests alternative actions that are expected to help solve that economic problem.

False

When we examine economic systems, we can identify the major philosophies of how they are organized. For example, if we say that a system is based on pure capitalism, then two of the major foundations of capitalism are a.) The State (the government) has primary ownership and control over the economy's resources, and b.) Centralized and Economy-wide plans guide the decisions how resources are used.

False

Economic therory assums that humans are rational decision makers. When people excercise rational decion making it means:

Humans make decisions based on the ability to maximize satisfaction within limited resources.

Economist assume that rationally (on average) influences that process that people use to arrive at decisions and determines the choices that people make. Part of the rational process is the weighing of extra benefits and extra costs of using additional units of scarce resources or product. To achieve an optimal result with scarce resources, economics predicts the rational decision maker will choose additional units of a scarce item until:

Marginal benefits equal marginal costs

The claim that human beings are constantly faced with the necessity to "make choices," and the idea that every choice is accompanied by an opportunity cost, are emphasized in economics because:

Resources are assumed to be relatively scarce

An imaginary economy has the misfortune of experiencing a large earthquake, followed by a tsunami. These natural disasters result in destruction of a significant portion of the economy's scarce resources. Using a standard analysis of the impact of these natural disasters on the resource base, we predict the PPF for this imaginary economy will:

Shift to the left

Microeconomics can be described as the study of:

The economic behavior of individual decision makers.

Which of the following statements best describe what the law of increasing opportunity costs means?

The marginal cost of producing additional units of the same product increases as the extra cost of producing consecutive units of the same item will increase, because not all resources are equally adapted to alternative uses.

A resource is considered scarce in economics if a resource is limited to comparison to its ability to meet relatively unlimited human needs and wants

True

In economic theory, there are "fundamental economic assumptions about the realities of decision making." the following two statements summarize what those fundamental assumptions are: 1. people are normally rational and goal-oriented when they make decisions 2. decisions occur within an environmental of limited resources

True

Supposed an imaginary economy has constant resources and constant technology. If that economy is sliding along its PPF, then that economy is changing its mixture of final goods produced while maintaining full employment. When the sliding movement is completed, the economy will have produced more of one product, but there will be an opportunity cost of reduced production of a second product

True

When economist perform this type of analysis, they analyze marginal benefits as inversely-related to consuming/using additional units of an item. economists predict the MB curve will have a negative slope because they expect the extra value of consuming successive units the same item to diminish

True

Economist argue that rational decision makers will aim to be efficient in resource use because resources are scarce. Which of the following statements best identifies efficiency in resource use?

Using the least amount of scarce resources that are necessary to achieve the best possible amount of end-products

Changes in resource prices (or in product prices) are used in economics in indicate changes in the scarcity of resources and products. Economist also argue that decision-makers react to price changes in predictable patterns. The statement below that best identifies how rational decision makers react to changing prices is:

rising relative product price encourages consumers to decrease their quantity demanded for a product, while businesses tend to increase the product amount that they are willing and able to sell.

A PPF is used to model the production of an economy with constant resources, constant technology and full employment of its scarce resources. The law of increasing opportunity costs, which is represented by the convex shape of the PPF, occurs because of:

the assumption that resources exist in units which are not uniformed in quality or suitability for producing the desired outputs