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The central problem all individuals face is
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scarcity of resources
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Economics is best defined as the study of how
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individuals decide to use scarce resources in an attempt to satisfy their unlimited wants
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A resource is something that
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is used to produce goods and services
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Resources are divided into the following broad categories:
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capital, natural resources, labor, and entrepreneurial ability
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In economics, capital is defined as
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human creations used in the production process
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The respective payments for the resources of capital, labor, entrepreneurial ability, and natural resources are
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interest, wages, profit, and rent
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In a circular-flow model, households supply all of the following except
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goods and services
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When economic choice involves an adjustment to an existing situation, marginal analysis
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involves comparing the additional costs and additional benefits of an activity before deciding
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Rational economic decision makers will make a change only if
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the expected marginal benefit exceeds expected marginal cost
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Capitals are exchanged in
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resource markets
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Economists believe that individuals respond in a predictable way to changes in costs and benefits. The term that best describes this belief is
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rational behavior
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Macroeconomics is the study of
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the behavior of the economy as a whole
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Which of the following is an example of a normative statement?
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The federal taxes should be reduced.
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In an economic model of consumer behavior, rational self-interest would likely be
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a behavioral assumption
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The opportunity cost of an activity is
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the value of the best alternative not chosen
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"Sunk cost" is
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unrecoverable costs
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The opportunity cost of a particular activity
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varies from person to person
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A country has an absolute advantage in the production of a good if that country
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can produce the good using fewer resources than another country would require
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The law of comparative advantage says that
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the individual with the lowest opportunity cost of producing a particular good should produce it
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If Sara can chop up more carrots per minute than Jason can, then
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Sara has an absolute advantage in carrot chopping
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If one person has the absolute advantage in producing both of two goods, then that person
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will have the comparative advantage in only one good
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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 Josh is
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painting 1/60 of a room
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Which of the following is most appropriately measured along one axis of the production possibilities frontier diagram?
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the quantity of a good produced
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With a good on each axis, the production possibilities frontier is down-ward sloping, which suggests
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the production of one good ultimately means sacrificing production of the other
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On a given production possibilities frontier, which of the following is not assumed to be fixed?
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production of each item
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A production possibilities frontier will be bowed out if
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resources are not perfectly adaptable to making each good
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The set of mechanisms and institutions that resolve the basic economic questions is called the
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economic system
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Which of the following is a characteristic of a pure command economy?
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centralized economic planning is used to answer the basic economic questions
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One of the most centrally planned economics in the world today is found in
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North Korea
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The concept of demand as used in economic theory expresses the relationship between the quantity of a good people will want and able to purchase and
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the price of that good
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A decrease in demand for a good could mean that
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the demand curve has shifted to the left
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The effect of an increase in the price of gasoline other things constant, is likely to be best represented by which of the following?
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a movement leftward along the demand curve for gasoline
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Fill in the blank: Other things constant, a __________ in prices will __________ the ___________ for a good.
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decrease; increase; demand
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In the case of an inferior good, a decrease in consumers' incomes would shift the
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demand curve outward
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Complementary goods are goods people consume together, such as peanut butter and jelly. If the price of peanut butter falls, we predict
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the demand for jelly would increase
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As the baby boom began, more families had young children and, as a consequence, the
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demand curve for preschool services shifted outward
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Which of the following will not shift demand curve for movie tickets?
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a change in the price of movie tickets
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Which of the following will increase the supply of vanilla ice cream?
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A decrease in the price of vanilla beans (an ingredient in ice cream)
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A decrease in the market of producers of a good will
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decrease the market supply because market supply is the sum of all individual supply curves
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A surplus occurs whenever
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current price is greater than equilibrium price
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If there is a shortage in the market for athletic shoes,
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the price should rise to eliminate the shortage
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A new hormone will increase the amount of milk each cow produces. If this hormone is adopted by many dairies, what will be the effect on the milk market?
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an increase in supply, lower equilibrium price, and higher equilibrium quantity
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The effect of an increase in consumer income on equilibrium price and quantity of personal computers (a normal good) is
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to increase equilibrium price and quantity
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Suppose demand decreases and supply decreases. Which of the following will happen?
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equilibrium quantity will decrease
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If price elasticity of demand is -5,
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a 1% decrease in price leads to a 5% increase in quantity demanded
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Along a straight-line downward-sloping demand curve, elasticity is
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greater at higher prices
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Demand is more elastic
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for goods with many substitutes than for goods with only a few
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If quantity supplied in the calculator market increases by 6 percent when the price increases by more than 6 percent, then
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supply is inelastic
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If an increase in price from $1.60 to $2 per unit leads to an increase in quantity supplied from 60 to 100 units,
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supply is elastic
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If we wanted to prove that car is a normal good, we would test the __________ of car and get a ___________
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income elasticity; positive number
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A 10 percent increase in income leads to a 8 percent increase in demand for a service. This service is a(n) ___________ good and demand is __________.
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normal; inelastic
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A 20 percent increase in the price of root beer causes a 10 percent increase in the quantity demanded of orange soda. This means that
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root beer and orange soda are substitutes
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