Midterm 1

Question 1

Scarcity

Answer 1

Society has limited resources and therefore cannot produce all the goods and services people wish to have

Question 2

Economics

Answer 2

The study of how society manages its scarce resources

Question 3

Efficiency

Answer 3

Society gets the most that it can from its scarce resources

Question 4

Equity

Answer 4

The benefits of those resources are distributed fairly

Question 5

Opportunity cost

Answer 5

What you give up to obtain something

Question 6

Market economy

Answer 6

Economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.

Question 7

Two possible sources of market failure

Answer 7

1. Externality: The impact of one person or firm’s actions on the well-being of a bystander
2. Market Power: The ability of a single person or firm to unduly influence market prices.

Question 8

Two ways of measuring standard of living

Answer 8

1. By comparing personal incomes between countries.

2. By comparing the total market value of a nation’s production.

Question 9

Productivity

Answer 9

Amount of goods produced from each hour of a worker’s time.

Question 10

Factors of production (definition & examples)

Answer 10

Resources the economy uses to produce goods and services.

Land, Labor, Capital (physical and human)

Question 11

Absolute advantage

Answer 11

The ability to produce a good using fewer inputs than another producer.

If two countries have an absolute advantage in separate goods and they engage in trade, both will gain.

Question 12

Comparative advantage

Answer 12

The ability to produce a good at a lower opportunity cost than another producer