The word “economy” comes from the Greek word oikonomos, which means
“one who manages a household”
Economics is defined as the study of
how society manages its scarce resources
Economics deals primarily with the concept of:
scarcity
Scarcity exists when
there is less of a good or resource available than people wish to have
In most societies, resources are allocated by
the combined actions of millions of households and firms
The adage, “There is no such thing as a free lunch,” is used to illustrate the principle that
people face tradeoffs
When the government implements welfare programs, which of the following is likely to occur?
equity is increased and efficiency is decreased
The opportunity cost of an item is
what you give up to get that item
Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your graduate program cost?
the $45,000 salary that you will be able to earn after having completed the program
A marginal change is a
small, incremental change
A construction company has built 50 houses so far this year at a total cost to the company of $8 million. If the company builds a 51st house, its total cost will increase to $8.18 million. Which of the following statements is correct?
all of the above
According to Adam Smith, the success of decentralized market economies is primarily due to
individuals’ pursuit of self-interest
The term “market failure” refers to
a situation in which the market on its own fails to allocate resources efficiently
Market failure can be cause by
externalities and market power
The fact that different countries experience different standards of living is largely explained by differences in those countries’
productivity levels
To raise productivity, policymakers could
all of the above
Large or persistent inflation is almost always caused by
government printing too much money
The business cycle is the
irregular fluctuations in economic activity
Economists make assumptions
to make the world easier to understand
Just like models constructed in other areas of science, economic models
incorporate assumption that may contradict reality
The circular-flow diagram is a
visual model of how the economy is organized
The two loops in the circular-flow diagram represent the flow of
inputs and outputs and the flow of dollars
The production possibilities frontier is a
graph that shows the various combinations of output the economy can possibly produce given the available resources and technology
If a nation has an absolute advantage in the production of a good,
it can produce that good using fewer resources then its trading partner.
According to the principle of comparative advantage,
countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners
