Which of the following is an example of a shortage?
not having enough of one brand of soda in the store on Saturday because of a sale on
Limited quantities of resources to meet unlimited wants is a
scarcity.
Any human-made resource that is used to create other goods and/or services is
capital.
Physical objects such as clothes or shoes are defined as
goods.
Which of the following is an entrepreneur?
a computer repair shop owner who opens a second shop across town
Natural resources that are used to make goods and services are considered
land.
Which of the following is NOT a factor of production?
the amount of money required to buy a car
Why are individuals, companies, and governments required to constantly make choices about how to best utilize resources?
There is always a scarcity of resources.
Something such as air, food, or shelter that is necessary for survival is a
need.
Why are scarcity and choice basic to the study of economics?
because there is not an endless supply of all resources
An opportunity cost is
the most desirable alternative given up as the result of a decision.
What are you doing when you make a decision at the margin?
reviewing several options of how to use one additional unit of a resource
Factors of production are
land, labor, capital, entrepreneurship, and technology
An example of an opportunity cost would be
not being able to afford a family trip because the family buys a computer.
Deciding whether to do or use one additional unit of some resource is
thinking at the margin.
How are trade-offs and opportunity costs different?
The opportunity cost is the most desirable trade-off.
A trade-off is
an alternative that we sacrifice when we make a decision.
What is something you might use to help you make a choice between two seemingly equal alternatives?
a decision-making grid
A phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods is
guns or butter.
Which of the following is a guns or butter decision?
A nation decides to produce fewer fighter jets and more bridges.
A production possibilities curve is a graph that shows
alternative ways to use an economy’s resources.
Production possibilities graphs are important tools for
showing ways to use an economy’s productive resources.
The production possibilities frontier is
the line on a production possibilities graph that shows the maximum possible output.
On a production possibilities graph, a point of underutilization would appear
below or to the left of the production possibilities frontier.
Efficiency is
using resources in such a way as to maximize the production of goods and services.
Why are there always opportunity costs when we shift from making one product to another?
Some resources are better suited for use in making the first product.
Using fewer resources than an economy is capable of using is
underutilization.
Using the factors of production to make one product always means that
fewer resources are left to make something else.
What is the name of the law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases?
the law of increasing costs
A country’s production possibilities depend on
-its technological level and its available resources.
-its natural resources.
-its human capital and its physical capital.
The skills and knowledge gained by a worker through education and experience are
human capital.
All the goods and services we produce are
scarce.
Economists refer to land, labor, and capital as the factors of production. “Land” in this context refers to natural resources. Is a “highway” land?
No.
The resources used to make goods and services are called
factors of production.
The purpose of a production possibilities graph is to
show alternative ways to use an economy’s resources.
Entrepreneurs are people who
put together land, labor, and capital to create new businesses.
The oil used to heat the factory is an example of capital at a book printing company? (Yes/No)
No.
If Karen gets up early and studies three hours for her test she is likely to get an A. If she sleeps in, she will probably get a C. What is the opportunity cost of sleeping in?
three additional hours of study
Which is NOT capital?
the person whose photograph is snapped by the candid photographer
Which of the following is NOT a factor of production?
the children whom the woman supports with her labor
Using resources in such a way as to maximize the production of goods and services is called
efficiency.
Giving up one alternative for another is called
a trade-off.
Countries often have to choose between producing military or consumer goods, a trade-off economists call
guns and butter.
Scarcity always exists because
our needs and wants are not limited, but our resources are limited.
A country’s production possibilities will grow if it
increases its resources.
Economics is the study of how people
choose from limited resources to meet their needs.
Thinking at the margins means deciding about
adding or subtracting one additional unit of some resource.
Shortages occur when
people have trouble supplying the goods and services at current prices.
Which of the following decisions can NOT be made at the margin?
whether to move to Boston from Chicago
What has been mostly responsible for advancing from the agricultural age to the industrial age?
innovation
In which economy do communities generally have a low standard of living?
traditional economy
The method used by a society to produce and distribute goods and services is
an economic system.
How a society answers the key economic questions primarily depends on
a society’s goals and values.
All of the following are key economic questions that every society must answer.
Where should goods and services be produced?
In a centrally planned economy, the three key economic questions are answered by the
central government alone.
A mixed economy is
a market-based, economic system based on free enterprise with some government involvement.
A centrally planned economy is
an economic system in which the government makes all the decisions about production and consumption of goods and services.
The income people receive for supplying factors of production, such as land, labor, or capital, are
factor payments.
Government programs that protect people experiencing unfavorable economic conditions are
a safety net.
Which of the following is an example of competition in the marketplace?
A small town has only two grocery stores, which are located one block away from each other.
The invisible hand is
a term economists use to describe the self-regulating nature of the marketplace.
Why do markets exist?
because people are not self-sufficient and need goods and services produced by others
The struggle among producers for consumer dollars is
competition.
What is the purpose of a firm?
to produce goods and services
In the study of economics, the definition of a market is
an arrangement that allows buyers and sellers to exchange things.
Consumer sovereignty is
the power of consumers to decide what gets produced.
According to Adam Smith, what are the two factors that regulate a marketplace?
competition and self-interest
Something, such as a reward or bonus, that encourages people to behave in a certain way could be called
an incentive.
A household is a person or a group of people who live in the same residence. In economics, households are also
consumers of goods and services.
Who answers the key economic questions in a centrally planned economy?
government
What is one benefit of a centrally planned economy?
it provides a jumpstart to some industries
What is a major disadvantage of a centrally planned economy?
It cannot meet consumers’ needs and wants.
Communism is a(n)
political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government.
Who owns the land and the capital in a centrally planned economy?
government
Authoritarian means
requiring strict obedience to an authority, such as a dictator.
Industry that requires a large capital investment and that produces items used in other industries is known as
heavy industry.
Which of the following was NOT a priority of Soviet planners?
providing a variety of luxury items for all consumers
In the Soviet Union, a collective was a
large farm leased from the state to groups of peasant farmers.
A social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society is
socialism.
To sell state-run firms to individuals is to
privatize
Why do governments fulfill some of society’s needs, such as education, health care, and mass transit?
so that all members of the society can participate
Which of the following is NOT a main priority of the U.S. government?
subsidizing businesses to keep product prices low
With “centrally planned” on the left and “free market” on the right, which of the following countries’ economic systems would be farthest to the right on the Continuum of Mixed Economies?
Hong Kong
Which of the following goods is provided by the U.S. government rather than by individuals?
roads
Which of the following countries is in transition from a centrally planned economy to a market-based system?
China
An economic system characterized by private or corporate ownership of capital goods; investments that are determined by private decision rather than by state control; and determined in a free market is
free enterprise
A Continuum is a
range with no clear divisions.
Laissez faire is
the doctrine that states that government generally should not intervene in the marketplace.
Property owned by individuals or companies, not by the government or the people, as a whole is
private property.
Which statement applies to all centrally-planned economies?
The government makes all important economic decisions.
Socialists believe economic equality is only possible if
the public controls the economy.
In a traditional economy, economic decisions are based largely on
custom
How does specialization affect an economy?
It prevents duplication of effort.
Markets allow us to
exchange things we have for things we want or need.
The circular flow model of a mixed economy shows
how government interacts with households and firms in the product and factor markets.
Which economic goals are difficult to achieve in a pure market system?
equity and security
In an economy in transition from central planning to free enterprise, you might expect to see
state firms sold to private individuals or entities.
Which is a key economic question faced by all countries?
What goods and services should be produced?
The former Soviet Union was an example of a communist country where
most economic and political power was controlled by the government.
In return for supplying the factors of production—land, labor, or capital—people receive
factor payments.
The self-regulating nature of the marketplace is called
the invisible hand.
The government decides which goods and services will be produced in a
command economy.
The circular flow model shows
the interactions between households and businesses in the free market.
The doctrine that government should not intervene in the marketplace is called
laissez faire.
A social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout society is called
socialism.
Competition and self-interest are two important forces in
free market economies.
Which of the following countries is the most extreme example of a centrally-planned economy?
North Korea
The free enterprise system of the United States is best described as a
mixed economy with limited government intervention and a great deal of economic freedom.
The free market economist Adam Smith is NOT known for
the circular flow model of a mixed economy.
x

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