Macroeconomics CH. 1

Which of the following enables society to produce more goods with current resources?

Advances in technology

Which of the following is a correct statement?

Although they are generalizations, economic laws are useful because they allow us to predict and therefore influence or adjust to events.

A rightward shift of the production possibilities curve of an economy represents which of the following?

An increase in the quantity of resources Economic growth

Ben says that "an increase in the tax on beer will raise its price." Holly argues that "taxes should be increased on beer because college students drink too much." We can conclude that

Holly's statement is normative, but Ben's is positive.

Refer to the tables. Suppose that technology and the quality of resources are the same in both countries. We can conclude that

Herbania has more resources than Duckistan.

Economic growth is the result of which of the following?

Increases in the supply of resources Technological advances Improvements in resource quality

Which of the following can be stated as potentially true about any economy?

Its current choice of position on its production possibilities curve helps determine the curve's future location.

As more and more of a particular good is produced, which of the following rises?

Opportunity costs

Which of the following is a positive statement?

The temperature is 92 degrees today.

Which statements best describe the combinations of goods that lie on the production possibilities curve?

They are attainable. They utilize all of an economy's available resources.

Which statement best describes combinations of goods that are beyond the production possibilities curve?

They are unattainable.

aggregate

a collection of specific economic units treated as if they were one unit

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that

all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

The budget line shows

all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

other-things-equal assumption

all variables except those under immediate consideration are held constant for a particular analysis

What do combinations of output that fall inside the production possibilities curve represent?

along

Factories, storage, transportation, and machinery are all examples of ______ goods.

capital

For economists, ______ goods include all manufactured aids used in producing consumer goods and services.

capital

Which of the following are general categories economists use to classify economic resources?

capital land labor entrepreneurial ability

economics examine the relationship between the price of a good and sales of that good while ignoring other related factors

ceteris paribus

refer to the notion that all variables except those under immediate consideration are held for a particular

ceteris paribus other things equal assumption

normative, value-based policy questions or statements give rise to

controversy or disagreement among economists

What is the simplified term economists use to refer to "factors of production"?

inputs

Points lying ______ the production possibilities curve are attainable but reflect less total output than can be produced.

inside

Refer to the diagram. All other things equal, curve C

is a more desirable production possibilities curve for an economy than curve A.

According to economists, economic self-interest

is a reality that underlies economic behavior.

Unemployment

is illustrated by a point inside the production possibilities curve.

The work-related activities of a teacher and doctor fall under the resource category of

labor

What do economists call the physical actions and mental activities that people contribute to the production of goods and services?

labor

Which of the following are general categories economists use to classify economic resources?

labor land capital entrepreneurial ability

From an economic standpoint, ______ includes all natural resources used in the production process.

land

Refer to the table. For these data, the law of increasing opportunity costs is reflected in the fact that

larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.

When economists say that people act rationally in their self-interest, they mean that individuals

look for and pursue opportunities to increase their utility.

The issues of inflation, unemployment, and business cycles are

major topics of macroeconomics.

capital

man-made physical objects (factories, roads) and intangible ideas (the recipe for cement) that do not directly satisfy human wants but which help tp produce goods and services that do satisfy human wants; also called capital goods. One of the four economic resources

discipline studies the decision-making process of customers, workers, households, and business firms on an individual basis rather than aggregates

microeconomics

which discipline studies the economy as a whole or its basic subdivisions or aggregates

microeconomics

Economists do not include money as an economic resource because ______.

money produces nothing

Improvements in the methods of production allows for the creation of ______.

more goods with available resources

Economics involves marginal analysis because

most decisions involve changes from the present situation.

______ economics considers the desirability of certain aspects of the economy and underlies expressions for particular economies

normative

disagreement among economists typically revolves around

normative economics

A production possibilities curve (PPC) illustrates the attainable combination ______

of two goods that can be produced given a specific set of resources

The maximum output of an economy with a specific level of resources is reflected by the points ______ the production possibilities curve.

on

due to scarce resources, society is faced with _____ cost when choosing to acquire a good by sacrificing the next thing that could have been acquired with those resources

opportunity

The Latin term "ceteris paribus" means

other things equal.

Points lying ______ the production possibilities curve represent greater, but unachievable levels of output with current inputs, than that at any point on the curve.

outside

assumption behind purposeful behavior is that

people act in such a way as to rationally pursue their own interests

the assumption behind purposeful behavior is that

people act in such a way as to rationally pursue their own interests

Unemployment in the economy is graphically represented by ______ the production possibilities curve.

points inside

A well-tested economic theory is often called

principle

If all discrimination in the United States were eliminated, the economy would

produce at some point closer to its production possibilities curve.

f all discrimination in the United States were eliminated, the economy would

produce at some point closer to its production possibilities curve.

This ______ table lists the different combinations of pizza and robots that can be produced with a specific set of resources.

production possibilities

A ______ lists the different combinations of two products that can be produced with a specific set of resources, assuming full employment.

production possibilities table

consumer goods

products and services that satisfy human wants directly

when an individuals and institutions make decisions with some desired outcome in mind they are engaging in ________

purposeful

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of

purposeful behavior.

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as

rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants.

Arable land, water, machinery, and professional athletes are all considered economic ________ used in the production of goods and services.

resources

When an economy produces a good such that the marginal benefit equals the marginal cost, this indicates that ______.

resources are being allocated efficiently

Land and mineral resources, transportation and communication facilities, factories and farm buildings, equipment, tools and machinery are all examples of _______.

scarce economic resources

Refer to the diagram. The direct economic impact of the destruction and loss of lives caused by the terrorist attacks of September 11, 2001, is illustrated by the

shift of the production possibilities curve from CD to AB.

other things equal, an increase in a consumer's money income

shifts the individual's budget rightward because she can now purchase more of both products

macroeconomics--->aggregate

specific economic units treated as if they were one unit

Any point inside the production possibilities curve indicates

that more output could be produced with the available resources.

opportunity cost

the amount of other products that must be forgone or sacrifices to produce a unit of a product

positive economics

the analysis of facts or data to establish scientific generalizations about economic behavior

other-things-equal-assumption

the assumption that factors other than those being considered are held constant. Also known as the coteries paribus assumption

economizing problem

the choices necessitated because society's economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce)

The production possibilities curve tells us

the combinations of two goods that can be produced with society's available resources.

marginal analysis

the comparison of marginal (extra or additional) benefits and marginal costs, usually for decision making

If the output of product X is such that marginal benefit equals marginal cost,

the correct amount of resources is being allocated to X's production.

Opportunity costs exist because

the decision to engage in one activity means forgoing some other activity.

in a world of scarcity

the decision to obtain the marginal benefit of a specific option always includes the marginal cost of forgoing something else

Assume that a change in government policy results in greater production of both consumer goods and investment goods. We can conclude that

the economy was not employing all of its resources before the policy change.

factors of production

the four economic resources: land, labor, capital and entrepreneurial ability

entrepreneurial ability

the human resource that combines the other economic resources of land, labor, and capital to produce new products or make innovations in the production of existing products; provided by entrepreneurs

economic resources

the land, labor, capital, and entrepreneurial ability that are used to produce goods and services. Also known as the factors of production

The outward bowing shape of the production possibilities curve is due to ______

the law of increasing opportunity costs

scarcity

the limits placed on the amounts and types of goods and services available for consumption as the result of there being only limited economic resources from which to produce output; the fundamental economic constraint that creates opportunity costs and that necessitates the use of marginal analysis (cost-benefit analysis) to make optimal choices

The optimal allocation of resources occurs when ______

the marginal benefit of the good equals the marginal cost

In the figure are two linear production possibilities curves for countries Alpha and Beta. We can conclude that

the opportunity cost of shelter is greater in Alpha than it is in Beta.

Refer to the diagram. This production possibilities curve is constructed so that

the opportunity costs of both bread and tractors increase as more of each is produced.

This production possibilities curve is constructed so that

the opportunity costs of both bread and tractors increase as more of each is produced.

macroeconomics

the part of economics concerned with the performance and behavior of the economy as a whole. Focuses on economic growth, the business cycle, interest rates, inflation, and the behavior of major economic aggregates such as the household, business, and government sectors

microeconomics

the part of economics concerns with 1.) decision making by individual units such as a household, a firm, or an industry and 2.) individual markets, specific goods and services, and product and resource prices ex; price of smartphones declined 2.8 percent last year

normative economics

the part of economics involving value judgements about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics

In moving along a given budget line,

the prices of both products and money income are assumed to be constant.

law of increasing opportunity cost

the principle that as the production of a good increases, the opportunity cost of producing an additional unit rises

scientific method

the procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles, and laws

economics

the social science concerned with how individuals, institutions and society make optimal (best) choices undef conditions of scarcity

Consumers might leave a fast-food restaurant without being served because

they conclude that the marginal cost (monetary plus time costs) exceeds the marginal benefit.

Which of the following is not a main function of the entrepreneur?

to make routine pricing decisions

The marginal cost curve is

upsloping because of increasing marginal opportunity costs.

Kelly works at an ice cream shop and observes that the number of people buying ice cream varies greatly from day to day. For a couple of weeks, she has recorded the number of people at the shop each day, as well as the daily temperature. If Kelly is using the scientific method to better understand ice cream buying habits, her next step is to

use the observed data to form a hypothesis about ice cream buying behavior.

because consumers behave in a rationally self-interested manner, the consumer will purchase a good or service

when the marginal benefit is greater than the marginal cost

Refer to the table. A total output of 3 units of capital goods and 4 units of consumer goods

would involve an inefficient use of the economy's scarce resources.

focus on positive economics

-cause and effect relationships -facts -establish scientific statements about economic behavior -focuses on acts and cause-and-effect relationships -avoids value judgements

most explored issues in microeconomics

-expenditure of a government entity -measuring total revenue of a firm -measuring the price of specific goods

economic growth

1.) an outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita

Refer to the diagram. Starting at point E, the production of successive units of bread will cost

1/8, 1/6, 1/4, and 1/2 units of tractors.

budget line

A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products' prices

A point that lies inside the production possibilities curve reflects which of the following?

A failure to achieve full employment

Technological advance in producing both capital goods and consumer goods is shown by the shift of the production possibilities curve from AB to

CD.

In which of the following ways do capital goods differ from consumer goods?

Capital goods satisfy consumer wants indirectly by facilitating the production of consumer goods. Consumer goods satisfy wants directly.

______ goods satisfy wants directly, whereas ______ goods do so indirectly.

Consumer; capital

Taken together, the four general categories of economic resources (land, labor, capital, and entrepreneurial ability) are referred to as which of the following?

Factors of production

What do combinations of output that fall inside the production possibilities curve represent?

Goods that are attainable Less total output than points on the curve

utility

PLEASURE OR SATISFACTION the want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services)

Which of the following are examples of changing resource supplies?

Population growth Improvements in labor quality Discovery of new resources

Which of the following illustrates the attainable combination of two goods that can be produced given a specific set of resources?

Production possibilities curve

Refer to the table. The opportunity cost of the fifth unit of capital goods

Refer to the table. The opportunity cost of the fifth unit of capital goods

What is the cause of a society's increasing opportunity costs with respect to the production of goods?

Resources that are not fully interchangeable

______ economies must forgo some of one good to gain more of another, whereas ______ economies are able to increase production of both goods.

Static; dynamic

Suppose an economy produces consumer goods and capital goods. Its current combination of production involves a higher level of capital goods than consumer goods. Which of the following can be inferred from this current choice on its production possibilities curve?

That its present choice in production may result in higher future prospects for economic growth

A production possibilities curve with an increasing slope is the result of which of the following?

The law of increasing opportunity costs

An economy can produce either guns or butter with all available resources. Suppose it currently produces all butter and it chooses to produce some guns, thereby giving up some production of butter. As a result, the first 200 units of guns are produced at the cost of only 50 units of butter. Not surprisingly, the next 200 units of guns are produced at the cost of 150 units of butter and the last 200 units of guns at the cost of 300 units of butter. What does this describe?

The law of increasing opportunity costs.

production possibilities curve

a curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed

The shift of the budget line from cd to ab in the figure is consistent with

a decrease in money income.

Which of the following will shift the production possibilities curve to the right?

a technological advance that allows farmers to produce more output from given inputs

economic perspective

a viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions

economic principle

a widely accepted generalization about the economic behavior of individuals or institutions

All of the following could immediately or eventually lead to an inward shift of a nation's production possibilities curve, except

an increase in the average skill level of all occupational groups.

choosing one good or service over another based on a comparison of marginal benefits and marginal costs always involves

an opportunity cost

highest valued alternative that is given up or sacrificed when choosing to produce or consume one good over another is referred

an opportunity cost

labor

any mental or physical exertion on the part of a human being that is used in the production of a good or service. One of the four economic resources

ceteris paribus

assuming other things remain constant assuming factors other than those being considered in a particular analysis do not change

positive economics ______ value judgements, tries to establish __________ statements about economic behavior

avoids; scientific; factual

Suppose Elroy's budget line is as shown on the diagram. If his tastes change in favor of Coke and against popcorn, the budget line will

be unaffected

A person should consume more of something when its marginal

benefit exceeds its marginal cost.

Through specialization and international trade, a nation

can attain some combination of goods lying outside its production possibilities curve.

Suppose that an economy is producing on its production possibilities curve but is not producing quantities of each good where the marginal benefit equals the marginal cost for each good. This economy....

can improve its allocation by producing more of one good and less of the other.

All natural resources, human resources, and manufactured goods that go into the production of goods and services are considered as society's scarce ________ resources.

economic

All natural resources, human resources, and manufactured goods that go into the production of goods and services are considered as society's scarce resources.

economic

Refer to the diagram. Suppose that point y represents the optimal combination of civilian goods and defense goods. We can conclude that at y, the marginal benefit of defense goods

equals the marginal cost of defense goods.

investment

expenditures that increase the volume of physical capital (roads, factories, wireless networks) and intangible ideas (formulas, processes, algorithms) that help to produce goods and services. Also known as economic investment. Not to be confused with financial investment

True or false: Economists use the terms "capital" and "money" interchangeably.

false

result if having scarce economic resources for the production of goods and services

fewer options that require choices

Which of the following resources would be considered to be land by an economist?

forests oil and mineral deposits water arable land

capital goods

human-made resources (electrical grids, the GPS system, rail networks) used to produce goods and services; goods that do not directly satisfy human wants; also called capital. One of the four economic resources

Which of the following terms implies the least degree of confidence in an economic generalization?

hypothesis

entrepreneurs

iIndividuals who provide entrepreneurial ability to firms by setting strategy, advancing innovations, and bearing the financial risk if their firms do poorly

the production possibilities curve illustrates

if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced

The production possibilities curve illustrates the basic principle that

if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

The law of increasing opportunity costs states that

if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so.

Even though local newspapers are very inexpensive, people rarely buy more than one of them each day. This fact

implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost.

land

in addition to the part of the earth's surface not covered by water, this term refers to any and all natural resources ("free gifts of nature") that are used to produce goods and services. Thus, it includes the oceans, sunshine, coal deposits, forests, the electromagnetic spectrum, and fisheries. Note that land is one of the four economic resources