Exam 1 Flashcards
An economy is a set of social arrangements that answers three fundamental questions: 1) What
is produced? 2) How is it produced? 3) ___________________
For whom is it produced?
a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines.
Economies of scale
Because of their relatively small national economies, which of the following is most likely considered to be the most important factor for Belgium, Korea, and Canada to take full advantage of specialization?
international trade
Which of the following refers to an economy in which most economic decisions are made by buyers and sellers, who may be individuals or firms?
Market-oriented economy
In the first chapter of The Wealth of Nations, Smith introduces the idea of the __________,which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers
Division of labor
What is meant by command economy?
An economy in which the government either makes or strongly influences most economic
decisions
What is meant by specialization?
When workers or firms focus on particular tasks in the overall production process for which they are well-suited
What is meant by globalization?
The trend in which buying and selling in markets have increasingly crossed national borders
What term is used to describe goods and services produced abroad and sold domestically?
Imports
Which of the following best characterizes the circular flow of income?
Businesses buy resources from households, and households use their income from the sale of
resources to buy goods and services from businesses.
Which of the following is NOT a characteristic of capitalism?
A) central planning
B) private property rights
C) a reliance on prices to direct resources to their best uses
D) laissez-faire policies
Central planning
In a _______________________, most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers.
market-oriented economy
In countries like _____________ the command economy predominates
Libya and North Korea
In ________________________, individuals or firms who save money and make financial investments are suppliers of financial capital.
the financial capital market
What term is used to describe another name for the budget constraint?
Opportunity set
What name is given to rise in the overall level of prices?
Price inflation
As depicted in _________________________________, it is necessary to give up some of one good to gain more of the other good.
the production possibilities frontier
Refer to Figure 2-1. An economy is operating at full employment, and then workers in the bread industry are laid off. This change is portrayed in the movement from:
C to F
The opportunity cost of attending university is likely to include all except which of the following?
cost of haircuts received during the school term
Which of the following refers to comparing the benefits and costs of choosing a little more or a little less of a good?
Marginal analysis
What name is given to as a person receives more of a good, the marginal utility from each additional unit of the good is smaller than from the previous unit?
Law of diminishing marginal utility
A lender demands an interest rate in part to compensate for any expected _________, so that the money that is repaid in the future will have at least as much buying power as the money that was originally loaned.
Inflation
Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is:
the benefit to his grades from studying for an hour
Refer to Figure 2-1. Along the production possibilities frontier, the most efficient point of production depicted is:
All points on the production possibilities frontier are equally efficient.
Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16oranges or 4 apples an hour. Which of the following statements is true?
If Alpha specializes in growing apples and Beta specializes in growing oranges, they could both gain by specialization and trade.
Colombia produces coffee with less labor and land than any other country; it therefore necessarily has:
an absolute advantage in coffee production
The idea behind comparative advantage reflects the possibility that one party:
may be able to produce something at a lower opportunity cost than another party.
The idea behind comparative advantage reflects the possibility that one party:
may be able to produce something at a lower opportunity cost than another party.
Intra-industry trade between similar trading partners allows the gains from______________________ that arise when firms and workers specialize in the production of a certain product
learning and innovation
Intra-industry trade between similar trading partners allows the gains from______________________ that arise when firms and workers specialize in the production of a certain product
learning and innovation
If a nation has a comparative disadvantage in the production of some commodity:
it can still gain from international trade in that commodity, by getting it at a lower opportunity cost than if it produced it domestically.
Jethro has a(n) __________________ in all aspects of camping: he is faster at carrying a backpack, gathering firewood, paddling a canoe, setting up tents, making a meal, and washing up.
absolute advantage
According to the law of supply:
there is a direct relationship between price and the quantity supplied.
A change in price of a good or service typically causes ___________________________ for that specific good or service.
a change along the supply curve
Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect:
Andy’s demand for beer to increase.
What term is used to describe the total number of units of a good or service purchased at a certain price?
Quantity demanded
The term “ceteris paribus” means that:
all variables except those specified are constant.
After widespread press reports about the dangers of contracting “mad cow disease” by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is:
shift of the demand curve for beef to the left
What name is given to goods where the quantity demanded rises as income rises?
Normal goods
What term is used to describe a law that prevents a price from falling below a certain level?
Price floor
What term is used to describe the loss in social surplus that occurs when a market produces an inefficient quantity?
Deadweight loss
If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that:
Goods X and Y are complement goods.
