Any point inside the production possiblities curve
Inefficient yet attainable
Any point outside the production possibilities curve
Unattainable
Any point on the production possibilities curve
Efficient
If two variables are directly related, the relationship will have a graph that:
Upward sloping line
Does unemployment shifts the production possibilities curve to the left?
False
If economic resources are perfectly interchangeable between the two products shown on a production possibilities graph:
Straight line
Consider an economy that is producing inside its production possibilities curve. This economy could move closer towards its production possibilities curve by:
Employing more of its available resources
Does the slope of a graph measure the rate of change in one variable as the other variable changes?
True
The maximum combinations of products that can be produced
Production possibilities curve
In a graph of the production possibilities curve, the two axes of the graph indicate the:
Quantities of the two products that a nation can produce
An economic model is a purposeful simplification of reality, whose function includes:
Analyzing the behavior of a typical or average consumer or firm
A movement from one point to another along the production possibilities curve would imply that:
Society is producing a different combination of outputs
The role of the entrepreneur in society is to:
Bring the factors of production together and take the risks of producing
What gives the production of possibilities curve its bowed out shape?
Law of increasing opportunity cost
What is the law of increasing opportunity cost?
As the production of a particular good increases, the opportunity cost of producing an additional unit rises
Other-things-equal assumption
It is the assumption that factors other than those being considered do not change
The assumption that what is true for one individual or part of a whole is necessarily true for a group of individuals or the whole
Fallacy of composition
Imagine an ideal scenario where world peace prevails and all nations are led by peace-minded leaders. In such a world, the:
MB for defense goods would shift left
A schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income
Budget line
The economic perspective includes three elements:
Scarcity and choice, purposeful behavior, and marginal analysis
The independent variable is:
The cause or the source
Economic systems differ in ____ and ____
Who owns the factors of production, the method used to motivate, coordinate, and direct economic activity
____ ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services
Freedom of enterprise
____ rests on the private ownership of property and on freedom of enterprise and freedom of choice.
The market system
____ means using the resources of an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services.
Specialization
The market system answers five fundamental questions:
What goods and services will be produced?
How will the goods and services be produced?
Who will get the goods and services?
How will the system accommodate change?
How will the system promote progress?
Two reasons why command systems failed
The coordination problem and the incentive problem
The place where households sell and business buy
Resource market
The place where households buy and businesses sell
Product market
In the circular flow diagram, resources flow ____
Counter-clockwise
All the income in the economy flows to
Households
Market system shields employees and suppliers from ____ but they receive no ____
Business risk, profit
Two benefits of restricting business risk to owners are:
Attracting inputs and focusing attention
What is the driving force for a market economy?
Self-interest
Total revenue - Total cost
Profit
How will the system change?
Changes in consumer taste, technology, and resource prices
How will the system progress?
Technological advancements, creative destruction, capital accumulation
What is the incentive problem of command economies?
No adjustments for surplus or shortage
Which of the following would be primarily determined in the resource markets?
The wage rates for computer programmers and engineers
According to the circular flow model of the market system, when resource-owners' money income is rising, then the costs to business firms must be falling.
False
In a capitalist system, the decisions and actions of millions of consumers and firms are highly coordinated by:
Markets and prices
A corporation is a type of business firm where the debt of the firm is considered its owners' personal responsibility.
False
Capital accumulation in a market system results from:
Dollar votes by entrepreneurs and business owners
Insurance companies facilitate the transfer of risk from:
Those who have a low-risk tolerance to those with high risk-tolerance
Competition is more likely to exist when:
There is easy entry into and exit out of industries
Are maximum profits what motivate consumers to decide who will get the goods and services in a market system?
False
What, according to economist Donald Boudreaux in the "Last Word" section of the chapter, best explains why the market system is not a random, chaotic mess?
Private property rights encourage mutual accommodation that leads to an arrangement of resources that is productive
Is it true/false that if people tried to produce as much of what they need on their own, then this would lead to a more efficient use of the economy's resources?
False
Does the concept of consumer sovereignty refers to the situation where consumers have the right to vote for the board of directors of large corporations?
False
In a market system, the task of assessing and managing the business risk of a firm is taken on by the firm's:
Entrepreneurs
Even with the use of money, exchange and trade cannot occur if there is no coincidence of wants
False
A required element for specialization to lead to an increase in the satisfaction of society's wants is:
Exchange and trade
In a market system, the income earned by owners of natural resources is called interest income
False
Is the choice of the most efficient production technique not affected by how much buyers want to buy the product?
True
Which of the following is necessary to make a trade in a barter economy?
A coincidence of wants
Competition in a market system denotes a condition where:
The diffusion of economic power limits its potential abuse
Creative destruction" in a market system is brought about by:
Entrepreneurship
In a market system, as one industry expands while another contracts, resources will flow:
From one industry due to the changes in resource prices paid by firms
The "invisible hand" concept refers to the:
Guiding function of prices in a market system
A characteristic of centrally planned economies is that:
The price is relatively unimportant in allocating resources
The simple circular flow model shows that workers and capital-owners offer their services to firms through the:
Resource Markets
Which of the following guides sensible decisions regarding the management of business risk in a market system?
Profit and loss system
In a market system, a firm's employees are typically shielded from business risk by:
Wage contracts
What is the purpose of competition?
To act as a regulating force in the marketplace
In order to know whether a demand is large or small, you need to include ____
Time
The determinants of demand are ____
Tastes, number of buyers, income, prices of related goods, and consumer expectations
The determinants of supply are ____
Resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, number of sellers
Any price above the equilibrium price results in ____
Surplus
Any price below the equilibrium price results in ____
Shortage
Demand essentially reflects the ____ of the good
Marginal benefit
Supply reflects the ____ of producing the good
Marginal cost
One problem that could arise from price ceilings is ____
Black markets
One problem that could arise from price floors is ____
The government might deal with the surplus situation by imposing taxes on those goods
Price ceilings lead to ____ while price floors lead to ____
Shortage, surplus
The production of any particular good in the least costly way
Productive efficiency
The particular mix of goods and services most highly valued by society
Allocative efficiency
Productive efficiency can/cannot occur without allocative efficiency
Can
Allocative efficiency can/cannot occur without productive efficiency
Cannot
If the resources of an economy are being used inefficiently, it would be ____
Possible to increase production of all goods simultaneously
What will people do because information is costly to acquire?
They will rationally choose not to become fully informed when making decisions
Consumers buy less of a good as its price increases because ____
Substitute goods are now relatively cheaper, the income of consumers has effectively decreased
An increase in the price of one substitute good causes an ____ in demand for the other
Increase
Which of the following events would decrease producer surplus?
Sellers' costs increase and the price of the good stays the same
Land used to grow corn could also be used to grow soybeans. Which of the following is true when the farmer plants soybeans and the market price of corn rises?
The opportunity cost of producing soybeans increases
Which of the following statements is true when collective decision making is utilized to resolve economic questions regarding the allocation of resources?
Central planning and political bargaining will replace market forces
Which would best explain a decrease in both the price and the quantity of a product over a period of time?
A decrease in the price of a substitute good
In the market system, do prices tend to guide resources from less important to more important uses as the market system accommodates change?
True
In a market system, do entrepreneurs start up businesses in order to earn a high salary?
False
The law of demand states that as price increases, other things being equal, the quantity of the product demanded increases
False
The rationale for the law of demand can best be understood on the basis of:
Diminishing marginal utility
When one speaks of "demand" in a particular market, this refers to:
The whole demand curve
The substitution effect suggests that, a lower price, you have the incentive to substitute the more expensive product for similar products that are relatively less expensive
False
If price falls, there will be an increase in demand
False
For demand, price changes ____ not ____
Quantity demanded, demand
Any point inside the production possiblities curve
Inefficient yet attainable
Any point outside the production possibilities curve
Unattainable
Any point on the production possibilities curve
Efficient
If two variables are directly related, the relationship will have a graph that:
Upward sloping line
Does unemployment shifts the production possibilities curve to the left?
False
If economic resources are perfectly interchangeable between the two products shown on a production possibilities graph:
Straight line
Consider an economy that is producing inside its production possibilities curve. This economy could move closer towards its production possibilities curve by:
Employing more of its available resources
Does the slope of a graph measure the rate of change in one variable as the other variable changes?
True
The maximum combinations of products that can be produced
Production possibilities curve
In a graph of the production possibilities curve, the two axes of the graph indicate the:
Quantities of the two products that a nation can produce
An economic model is a purposeful simplification of reality, whose function includes:
Analyzing the behavior of a typical or average consumer or firm
A movement from one point to another along the production possibilities curve would imply that:
Society is producing a different combination of outputs
The role of the entrepreneur in society is to:
Bring the factors of production together and take the risks of producing
What gives the production of possibilities curve its bowed out shape?
Law of increasing opportunity cost
What is the law of increasing opportunity cost?
As the production of a particular good increases, the opportunity cost of producing an additional unit rises
Other-things-equal assumption
It is the assumption that factors other than those being considered do not change
The assumption that what is true for one individual or part of a whole is necessarily true for a group of individuals or the whole
Fallacy of composition
Imagine an ideal scenario where world peace prevails and all nations are led by peace-minded leaders. In such a world, the:
MB for defense goods would shift left
A schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income
Budget line
The economic perspective includes three elements:
Scarcity and choice, purposeful behavior, and marginal analysis
The independent variable is:
The cause or the source
Economic systems differ in ____ and ____
Who owns the factors of production, the method used to motivate, coordinate, and direct economic activity
____ ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services
Freedom of enterprise
____ rests on the private ownership of property and on freedom of enterprise and freedom of choice.
The market system
____ means using the resources of an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services.
Specialization
The market system answers five fundamental questions:
What goods and services will be produced?
How will the goods and services be produced?
Who will get the goods and services?
How will the system accommodate change?
How will the system promote progress?
Two reasons why command systems failed
The coordination problem and the incentive problem
The place where households sell and business buy
Resource market
The place where households buy and businesses sell
Product market
In the circular flow diagram, resources flow ____
Counter-clockwise
All the income in the economy flows to
Households
Market system shields employees and suppliers from ____ but they receive no ____
Business risk, profit
Two benefits of restricting business risk to owners are:
Attracting inputs and focusing attention
What is the driving force for a market economy?
Self-interest
Total revenue - Total cost
Profit
How will the system change?
Changes in consumer taste, technology, and resource prices
How will the system progress?
Technological advancements, creative destruction, capital accumulation
What is the incentive problem of command economies?
No adjustments for surplus or shortage
Which of the following would be primarily determined in the resource markets?
The wage rates for computer programmers and engineers
According to the circular flow model of the market system, when resource-owners' money income is rising, then the costs to business firms must be falling.
False
In a capitalist system, the decisions and actions of millions of consumers and firms are highly coordinated by:
Markets and prices
A corporation is a type of business firm where the debt of the firm is considered its owners' personal responsibility.
False
Capital accumulation in a market system results from:
Dollar votes by entrepreneurs and business owners
Insurance companies facilitate the transfer of risk from:
Those who have a low-risk tolerance to those with high risk-tolerance
Competition is more likely to exist when:
There is easy entry into and exit out of industries
Are maximum profits what motivate consumers to decide who will get the goods and services in a market system?
False
What, according to economist Donald Boudreaux in the "Last Word" section of the chapter, best explains why the market system is not a random, chaotic mess?
Private property rights encourage mutual accommodation that leads to an arrangement of resources that is productive
Is it true/false that if people tried to produce as much of what they need on their own, then this would lead to a more efficient use of the economy's resources?
False
Does the concept of consumer sovereignty refers to the situation where consumers have the right to vote for the board of directors of large corporations?
False
In a market system, the task of assessing and managing the business risk of a firm is taken on by the firm's:
Entrepreneurs
Even with the use of money, exchange and trade cannot occur if there is no coincidence of wants
False
A required element for specialization to lead to an increase in the satisfaction of society's wants is:
Exchange and trade
In a market system, the income earned by owners of natural resources is called interest income
False
Is the choice of the most efficient production technique not affected by how much buyers want to buy the product?
True
Which of the following is necessary to make a trade in a barter economy?
A coincidence of wants
Competition in a market system denotes a condition where:
The diffusion of economic power limits its potential abuse
Creative destruction" in a market system is brought about by:
Entrepreneurship
In a market system, as one industry expands while another contracts, resources will flow:
From one industry due to the changes in resource prices paid by firms
The "invisible hand" concept refers to the:
Guiding function of prices in a market system
A characteristic of centrally planned economies is that:
The price is relatively unimportant in allocating resources
The simple circular flow model shows that workers and capital-owners offer their services to firms through the:
Resource Markets
Which of the following guides sensible decisions regarding the management of business risk in a market system?
Profit and loss system
In a market system, a firm's employees are typically shielded from business risk by:
Wage contracts
What is the purpose of competition?
To act as a regulating force in the marketplace
In order to know whether a demand is large or small, you need to include ____
Time
The determinants of demand are ____
Tastes, number of buyers, income, prices of related goods, and consumer expectations
The determinants of supply are ____
Resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, number of sellers
Any price above the equilibrium price results in ____
Surplus
Any price below the equilibrium price results in ____
Shortage
Demand essentially reflects the ____ of the good
Marginal benefit
Supply reflects the ____ of producing the good
Marginal cost
One problem that could arise from price ceilings is ____
Black markets
One problem that could arise from price floors is ____
The government might deal with the surplus situation by imposing taxes on those goods
Price ceilings lead to ____ while price floors lead to ____
Shortage, surplus
The production of any particular good in the least costly way
Productive efficiency
The particular mix of goods and services most highly valued by society
Allocative efficiency
Productive efficiency can/cannot occur without allocative efficiency
Can
Allocative efficiency can/cannot occur without productive efficiency
Cannot
If the resources of an economy are being used inefficiently, it would be ____
Possible to increase production of all goods simultaneously
What will people do because information is costly to acquire?
They will rationally choose not to become fully informed when making decisions
Consumers buy less of a good as its price increases because ____
Substitute goods are now relatively cheaper, the income of consumers has effectively decreased
An increase in the price of one substitute good causes an ____ in demand for the other
Increase
Which of the following events would decrease producer surplus?
Sellers' costs increase and the price of the good stays the same
Land used to grow corn could also be used to grow soybeans. Which of the following is true when the farmer plants soybeans and the market price of corn rises?
The opportunity cost of producing soybeans increases
Which of the following statements is true when collective decision making is utilized to resolve economic questions regarding the allocation of resources?
Central planning and political bargaining will replace market forces
Which would best explain a decrease in both the price and the quantity of a product over a period of time?
A decrease in the price of a substitute good
In the market system, do prices tend to guide resources from less important to more important uses as the market system accommodates change?
True
In a market system, do entrepreneurs start up businesses in order to earn a high salary?
False
The law of demand states that as price increases, other things being equal, the quantity of the product demanded increases
False
The rationale for the law of demand can best be understood on the basis of:
Diminishing marginal utility
When one speaks of "demand" in a particular market, this refers to:
The whole demand curve
The substitution effect suggests that, a lower price, you have the incentive to substitute the more expensive product for similar products that are relatively less expensive
False
If price falls, there will be an increase in demand
False
For demand, price changes ____ not ____
Quantity demanded, demand