Chapter 2- The Economic Way of Thinking

Question 1

Positive Incentive

Answer 1

an incentive that either reduces costs or increases benefits, resulting in an increase in an activity or behavior.

Question 2

Negative Incentive

Answer 2

an incentive that either increases costs or reduces benefits, resulting in a decrease in the activity or behavior.

Question 3

Specializing

Answer 3

concentrating in the production of one , or a few, goods.

Question 4

Comparative Advantage

Answer 4

occurs when a person or country can produce a good or service at a lower opportunity cost than others.

Question 5

Efficiency

Answer 5

when an economy gets the most out of its scarce resources.

Question 6

Price Controls

Answer 6

government-mandated minimum or maximum prices.

Question 7

Market Failure

Answer 7

____ ____ when an economy fails to allocate resources efficiently on its own.

Question 8

A ___ ___ is an incentive that either reduces costs or increases benefits, resulting in an increase in an activity or behavior.

Answer 8

positive Incentive

Question 9

A _____ _____ occurs when a person or country can produce a good or service at a lower opportunity cost than others.

Answer 9

Comparative Advantage

Question 10

A ____ ______ is an incentive that either increases costs or reduces benefits, resulting in a decrease in the activity or behavior.

Answer 10

Negative Incentive

Question 11

As long as human ________ exceed available _______, scarcity will exist

Answer 11

wants; resources

Question 12

Something may be rare, but if it is not _______ it is not scarce.

Answer 12

desirable

Question 13

The scarce resources that are used in the production of goods and services can be grouped into four categories:

Answer 13

land, labor, capital, and entrepreneurship

Question 14

Capital includes human capital, the ___ and ____ people receive from _______ and _____ ____ .

Answer 14

knowledge; skill; education; on-the-job training

Question 15

Entrepreneurs are always looking for new ways to improve ____ ____ or _______ . They are lured by the chance of making a _______ .

Answer 15

production techniques; products; profit

Question 16

_______ goods include fairness, friendship, knowledge, security, and health.

Answer 16

Intangible

Question 17

_______ are intangible items of value, such as education, provided to consumers.

Answer 17

Services

Question 18

Scarce goods created from scarce resources are called _______ goods.

Answer 18

economic

Question 19

Scarcity ultimately leads to _______ for the available goods and services.

Answer 19

competition

Question 20

Because we all have different ____ and ___ , scarcity affects everyone differently.

Answer 20

wants; desires

Question 21

Economics is the study of the choices we make concerning our many _______ and _______ .

Answer 21

wants; desires

Question 22

In a world of scarcity, we all face _______ .

Answer 22

opportunity-cost

Question 23

The highest of best forgone alternative resulting from a decision is called the _______.

Answer 23

opportunity cost

Question 24

The cost of grocery shopping is the _______ paid for the goods plus the _______ costs incurred.

Answer 24

price; non-price

Question 25

Many choices involve ___ ____, when doing some of one activity and a lot of another.

Answer 25

marginal costs

Question 26

scarcity

Answer 26

exists when human wants exceed available resources. (material and non-material wants)

Question 27

labor

Answer 27

the physical and human effort used in the production of goods and services

Question 28

land

Answer 28

the natural resources used in the production of goods and services

Question 29

capital

Answer 29

the equipment and structures used to produce goods and services

Question 30

human capital

Answer 30

the productive knowledge and skill people receive from education, on-the-job training, health and other factors that increase productivity

Question 31

entrepreneurship

Answer 31

the process of combining labor, land, and capital to produce goods and services

Question 32

goods

Answer 32

items we value or desire

Question 33

tangible goods

Answer 33

items we value or desire that we can reach out and touch

Question 34

intangible goods

Answer 34

goods that we cannot reach out and touch, such as friendship and knowledge

Question 35

services

Answer 35

intangible items of value provided to consumers, such as education

Question 36

economic goods

Answer 36

scarce goods created from scarce resources–goods that are desirable but limited in supply

Question 37

bads

Answer 37

items that we do not desire or want, where less is preferred to more, like terrorism, smog, or poison oak

Question 38

marginal thinking

Answer 38

focusing on the additional, or marginal, choices; marginal choices involve the effects of adding or subtracting, from the current situation, the small (or large) incremental changes to a plan of action

Question 39

rule of rational choice

Answer 39

individuals will pursue an activity if the expected marginal benefits are greater than the expected marginal costs

Question 40

net benefit

Answer 40

the difference between the expected marginal benefits and the expected marginal costs

Question 41

opportunity cost

Answer 41

the value of the best forgone alternative that was not chosen

Question 42

Economists emphasize _____ thinking because the focus is on additional, or ______ choices, which involve the effects of _____ or _____ the current situation.

Answer 42

marginal; marginal; adding to; subtracting from

Question 43

The rule of rational choice is that in trying to make themselves better off, people alter their behavior if the ___ ___ outweigh the __ ___.

Answer 43

marginal benefits; marginal costs

Question 44

In acting rationally, people respond to _____.

Answer 44

incentives

Question 45

If the benefits of some activity _____ and/or if the costs ______, economists expect the amount of that activity to rise. Economists call these _____ incentives. Likewise, if the benefits of some activity _____ and/or if the costs ______, economists expect the amount of that activity to fall. Economists call these _____ incentives.

Answer 45

rise; fall; positive; fall; rise; negative

Question 46

Because most people seek opportunities that make them better off, we can _____ what will happen when incentives are ______.

Answer 46

predict; changed

Question 47

People ____ by concentrating their energies on the activity to which they are best suited because individuals incur _____ opportunity costs as a result.

Answer 47

specialize; lower

Question 48

If a person, a region, or a country can produce a good or service at a lower opportunity cost than others can, we say that they have a(n) _____ in the production of that good or service.

Answer 48

comparative advantage

Question 49

The primary advantages of specialization are that employees acquire greater ____ from repetition, they avoid ______ time in shifting from one task to another, and they do the types of work for which they are _____ suited.

Answer 49

skill; wasted; best

Question 50

We trade with others because it frees up time and resources to do other things we do _____.

Answer 50

better

Question 51

Produce what we do ____ best and _____ for the ____.

Answer 51

relatively; trade; rest

Question 52

Market prices serve as the _____ of the market system. They communicate information about the ____ ____ __ ____ to buyers, and they provide sellers with critical information about the ____ ____ that buyers place on those products. This communication results in a shifting of resources from those uses that are _____ valued to those that are ____ valued.

Answer 52

language; relative availability of products; relative values; less; more

Question 53

The basis of a market economy is ____ exchange and the ____ system that guides people´s choices regarding what goods to produce and how to produce those goods and distribute them.

Answer 53

voluntary; price

Question 54

____ ____ can lead the economy to fail to allocate resources efficiently, as in the cases of pollution and scientific research.

Answer 54

Market failure

Question 55

Sometimes a painful trade-off exists between how much an economy can produce _____ and how that output is ______.

Answer 55

efficiently; distributed

Question 56

In the case of market ____, appropriate government policies could improve on market outcomes.

Answer 56

failure