Practice Questions Chapter 2 Microeconomics

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A common thread between economics and other sciences such as physics is that

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real-world observations often lead to theories

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Because it is difficult for economists to use experiments to generate data, they generally must

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use whatever data the world gives them

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One difficulty economists face that some other scientists do not is that

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experiments are often difficult in economics

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Economists make assumptions

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to make the world easier to understand

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If an economist develops a theory about international trade based on the assumption that there are only two countries and two goods,

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the theory can be useful in helping economists understand the complex world of international trade involving any countries and many goods

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When economists attempt to simplify the real world and make it easier to understand they make

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assumptions

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When scientists make good assumptions, they

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greatly simplify the problem without substantially affecting the answer

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Good economic models

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omit many details to allow us to see what is truly important

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The circular-flow diagram is a

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visual model of how the economy is organized

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In a circular-flow diagram,

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income payments flow from firms to households, and sales revenue flows from households to firms

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Another name for goods and services produced by firms is

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output

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Another term for factors of production is

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inputs

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Refer to Figure 2-1. Which arrow shows the flow of the factors of production?

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Refer to Figure 2-1. Which arrow shows the flow of income payments?

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Any point on a country's production possibilities frontier represents a combination of two goods that an economy

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can produce using all available resources and technology

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If an economy is producing efficiently

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there is no way to produce more of one good without producing less of the other

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The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the

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amount of the other good that must be given up

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The production possibilities frontier is bowed outward if

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resources are not perfectly shiftable

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Refer to Figure 2-8. What is the opportunity cost of moving from point A to point B?

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20 barrels

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Microeconomics is the study of

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how individual households and firms make decisions

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Macroeconomics is the study of

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economy-wide phenomena

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Economists view positive statements as

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descriptive, making a claim about how the world is

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When economists are speaking as policy advisors, they are more likely to use

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normative statements

1 of 23

question

A common thread between economics and other sciences such as physics is that

answer

real-world observations often lead to theories

question

Because it is difficult for economists to use experiments to generate data, they generally must

answer

use whatever data the world gives them

question

One difficulty economists face that some other scientists do not is that

answer

experiments are often difficult in economics

question

Economists make assumptions

answer

to make the world easier to understand

question

If an economist develops a theory about international trade based on the assumption that there are only two countries and two goods,

answer

the theory can be useful in helping economists understand the complex world of international trade involving any countries and many goods

question

When economists attempt to simplify the real world and make it easier to understand they make

answer

assumptions

question

When scientists make good assumptions, they

answer

greatly simplify the problem without substantially affecting the answer

question

Good economic models

answer

omit many details to allow us to see what is truly important

question

The circular-flow diagram is a

answer

visual model of how the economy is organized

question

In a circular-flow diagram,

answer

income payments flow from firms to households, and sales revenue flows from households to firms

question

Another name for goods and services produced by firms is

answer

output

question

Another term for factors of production is

answer

inputs

question

Refer to Figure 2-1. Which arrow shows the flow of the factors of production?

answer

question

Refer to Figure 2-1. Which arrow shows the flow of income payments?

answer

question

Any point on a country's production possibilities frontier represents a combination of two goods that an economy

answer

can produce using all available resources and technology

question

If an economy is producing efficiently

answer

there is no way to produce more of one good without producing less of the other

question

The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the

answer

amount of the other good that must be given up

question

The production possibilities frontier is bowed outward if

answer

resources are not perfectly shiftable

question

Refer to Figure 2-8. What is the opportunity cost of moving from point A to point B?

answer

20 barrels

question

Microeconomics is the study of

answer

how individual households and firms make decisions

question

Macroeconomics is the study of

answer

economy-wide phenomena

question

Economists view positive statements as

answer

descriptive, making a claim about how the world is

question

When economists are speaking as policy advisors, they are more likely to use

answer

normative statements

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