Chapter 2

Question 1

provides significantly more data

Answer 1

Line graph

Question 2

enables the economist to see the maximum feasible amounts of two commodities that a business can produce when those items are competing for that busi­ ness’s limited resources.

Answer 2

Production possibilities curve

Question 3

provides a visual explanation of how a complete national eco­ nomic system functions.

Answer 3

Circular flow model

Question 4

the total expenditures made by all households

Answer 4

Consumption expenditures

Question 5

the resources used in producing the nation’s GDP

Answer 5

Factors of production

Question 6

refers to all the natural resources that go into the production of goods.

Answer 6

Land

Question 7

is all human effort that goes into the creation of goods or services

Answer 7

Labor

Question 8

Goods used to produce other goods

Answer 8

Capital

Question 9

activity of creatively combining natural resources, human labor, and capital in unique ways to develop new and useful goods and services.

Answer 9

Entrepreneurship

Question 10

the payments business firms make in ex­ change for the four factors of production

Answer 10

Factor costs

Question 11

all payments for the use of an owner’s property

Answer 11

Rent

Question 12

all payments for labor used to produce goods or ser­vices

Answer 12

Wages

Question 13

payment business firms make on borrowed money

Answer 13

Interest

Question 14

difference between the revenues received from the sale of a product and the cost of the land, labor, and capital that went into its production.

Answer 14

Profit

Question 15

payments of money or goods to persons for which the government expects no specific economic repaymen

Answer 15

Transfer payments

Question 16

popular method of explaining simple relationships between pairs of variables

Answer 16

Tabular model

Question 17

situation in which a government, business firm, or individual receives less income than is paid out in expenses

Answer 17

Budget deficit

Question 18

When the government receives more in taxes than it is paying out,

Answer 18

Budget surplus

Question 19

A collection of a nation’s financial institutions that receive deposits of excess funds from households and lend those funds to business firms.

Answer 19

Financial market

Question 20

any time house­ holds withdraw money from an account or borrow it.

Answer 20

Dissavings

Question 21

When govern­mental borrowing; leads to a problem

Answer 21

Crowding out

Question 22

What are the two purposes for economic models?

Answer 22

Instruction me prediction of future events

Question 23

What advantage does a line graph offer over a tubular model

Answer 23

A line graph provides significantly more data than the tubular model

Question 24

For an economists , what is the primarily value of a production possibility curve

Answer 24

Enables the economists to see maximum feasible amounts that a business can produce with its limited resources

Question 25

What does the circular flow model attempt to explain?

Answer 25

A circular flow model is a visual explanation of how a complete national economic system functions

Question 26

What are the four factors of production?

Answer 26

Land, labor, capital, entreprenurship

Question 27

What four payments do business firms make in exchange for thefactors of production

Answer 27

Rent, wages, interest, profit

Question 28

What are the four major entities in the circular flow model, andwhat is the primary role of each in the circular flow?

Answer 28

1. ) Households - which are the princple purchasers of goods and services.
2. ) Business firms - which create goods and services
3. ) Government - which purchases goods and services and provides transfer payments
4. ) Financial market - which circulate money from households to business firms.

Question 29

What is a model? Give an example of an economic model.

Answer 29

A model is a simplified representation of a more complex concept or item. Examples are (PPC) & circular flow model

Question 30

What advantage does the line graph have over the tabularmodel?

Answer 30

A line graph provides significantly more data than the tabular model because it is not limited to a certain amount of observations.

Question 31

a production possibilities curve, what do points on, inside,and outside the curve represent?

Answer 31

point on the curve presents productive efficiency in the use of resources.
A point inside the curve presents inefficient production.
A point outside the curve presents the combination of products that is unable to produce. unless the condition is to be changed.

Question 32

Draw the basic circular flow (in which the only participants arehouseholds and business firms), labeling each of the arrows orflows.

Answer 32

Found on page 32

Question 33

Difference between financial and real capital

Answer 33

Financial capital is money that is lent to business firms from households

Real capital is the tools that business firms use to produce goods and services

Question 34

What is the most important factor of production ? Why?

Answer 34

Entrepreneurship because it directs, organizes, and plans production process by coordinating the land, labor, and capital.

Question 35

What economic functions does the government perform as il­lustrated by the circular flow model?

Answer 35

The government purchases goods and services from businesses and give transfer payments to households while it collects personal taxes from households and business taxes from firms.