economics is the study of
how people use limited resources to try to satisfy unlimited wants
a resource is something that
is used to product goods and services
in economics, capital is defined as
human creations used in the production process
the respective payments for the resources of natural resources, labor, capital, and entrepreneurial ability are
rent, wages, interest, and profit
households
own and sell resources
rational economic decision makers will make a change only if
the expected marginal benefit exceeds expected marginal cost
opportunity cost is defined
as the value of the best alternative not chosen
the opportunity cost of college is the same for all students who are receiving full-tuition scholarships
false
sunk costs
should not be considered when making economic decisions
the law of comparative advantage states that the person who should produce a good is the person
who has the lowest opportunity cost of producing that good
john takes 10 minutes to iron a shirt and 20 minutes to type a paper. Harry takes 10 minutes to iron a shirt and 30 minutes to type a paper. what statement is correct?
harry has a comparative advantage in ironing
helen gives up the opportunity to bake 40 cakes for each room she paints; josh can paint one room in the time it takes him to bake 60 cakes. the opportunity cost of a cake for helen is
painting 1/40 of a room
because of specialization and comparative advantage, most people
consume the products of many other specialists
when drawing a production possibilities frontier, all of the following are usually assumed
technology is fixed, resources can be shifted between production of the two goods, the production possibilities frontier is drawn for a particular time period, resources are fully and efficiently employed
efficiency refers to
getting the maximum possible output from available resources
the law of increasing opportunity cost reflects the fact that
resources are not perfectly substitutable
households act as suppliers when they provide
resources to firms and governments
the objective of the household is to
maximize utility
what represents the largest sources of income for US households?
wages and salaries
households supply four basic types of resources, what are they?
natural resources, capital, entrepreneurial ability, labor
suppose you own a proprietorship that is in serious financial difficulty. the assets of the company are 100,000, but liabilities are 175,000. you also have, however, stock in General Motors worth 200,000. if you file bankruptcy, what amount of personal as
$75,000
in terms of the numbers of firms in the US economy, the most common type of firm is the
sole proprietorship
which of the following is a reason why government is a participant in a market-oriented economy?
to enforce contracts and protect private property
natural monopolies occur when
one firm can service the market more cheaply than two or more firms can
the funds to pay for police protection are usually raised through taxation because
police protection would be hard to provide exclusively to those who voluntarily pay for it
a public good is one that is supplied to
all people, regardless of whether they pay or not
the law of demand states that
price and quantity demanded are inversely related
movements along a demand curve are called changes in
quantity demanded
suppose you drink more tea because the price of coffee has increased. which of the following best explains your action?
the substitution effect
suppose there are only two goods, apples and oranges. what happens if the price of each good increases by 15 percent?
there is no substitution effect because relative prices have remained constant
the income effect of a decrease in the price of legal services is an
increase in the quantity demanded of legal services
what would shift the supply curve for a product to the right?
an improvement in the technology for producing the good.
a surplus of shoes will cause
a decrease in the price of shoes
a shortage of textbooks will cause
an increase in the price of textbooks
velcro is becoming more and more popular for a variety of uses, including as fasteners for shoes. what should happen to the equilibrium price of quantity for shoelaces as a result?
both price and quantity should decrease
which of the following contributes to an improved standard of living?
increases in the amount and quantity of available resources, better technology, improvements in the rules of the game, and increases in the quality of labor
the rules of the game refer to
any factor that facilitates production and exchange, such as tax laws and property rights
if Q is the real output, K is capital in use, and L is labor employed, the productivity of labor is measured by
Q/L
labor productivity is measured by
total output/total employment
the resource whose productivity is most commonly measured is
labor
the per-worker production function illustrates the fact that as the amount of capital per worker increases, output per worker
increases but at a decreasing rate
which of the following is likely to cause a decrease in labor productivity?
a decline in student achievement scores, a service sector that is growing as a percentage of GDP, decreased spending on research and development, high federal budget deficits
physical capital includes all of the following
roads and bridges, machinery and factories, communications networks, a new dump truck
if per capita GDP growth exceeds labor productivity growth
employment must be growing faster than the population
which of the following best describes an intermediate good
it helps produce another good
what is physical capital?
manufactured resources, such as buildings and machines
gross domestic product includes final goods and services, but not intermediate goods because
the value of the intermediate goods is already included in the value of the final goods
rhonda sells a house she has owned for 15 years. to make it more marketable, she buys carpeting and has it professionally installed, and buys wallpaper that her daughter hangs. which item would be included in this years GDP?
the sale price of the wallpaper and carpeting and the installation fee for the carpet.
which of the following is the best example of an investment as defined by economists
a firm buying personal computers for its secretarial staff
US exports are
included in US GDP because they are produced domestically
double counting in the value added approach to GDP refers to
counting the total value of a final output in addition to the value of the inputs used to make it
the simple circular flow model shows that
households are on the supply side of the resource market and the demand side of the product market
which of the following is a leakage from the circular flow?
taxes
which of the following is an injection into the circular flow?
transfer payments
the labor force consists of all
the noninstitutionalized population over 16 in the economy who hold jobs or are looking for them
the unemployment rate is the
percentage of the labor force that does not have a job
the labor force participation rate is the number of people
in the labor force divided by the adult population
sharon was being treated unfairly by her boss, sho she stormed off the job and two weeks later found another position. for two weeks sharon experienced
frictional unemployment
cyclical unemployment results from
a recession in the ecnomy
in which of the following industries are workers least likely to suffer from cyclical unemployment
education
structural unemployment results from
a mismatch of skills
the unemployment rate does not measure all of the "unemployment problem" which of the following groups is not counted as unemployed in the offical unemployment statistics?
the underemployed and the discouraged workers
if the aggregate demand curve shifts rightward
the resulting increase in the price level is usually called demand-pull inflation
if the aggregate supply curve shifts leftward
the resulting increase in the price level is usually called cost-push inflation
the higher you think the inflation rate is likely to be
the higher nominal interest rate you will offer as a borrower and want as a lender.
the problems that inflation creates for society are caused primarily by
uncertainty regarding the rate at which different prices are increasing or will increase
a decrease in the interest rate, all other things constant,will
increase the quantity of loanable funds demanded
the real interest rate can be expressed as the
nominal interest rate minus the inflation rate