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Definition of Economics
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Economic Resources (aka factors of production or inputs) are:
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| Question | Answer |
|---|---|
| Definition of Economics | the study of how people choose to allocate their scarce resources to satisfy their unlimited wants. |
| Economic Resources (aka factors of production or inputs) are: | -land (natural resources) -labor (skills, abilities) -capital (constructed inputs such as factories) - entrepreneurship (managerial and organizational skills) |
| Does the following completely reflect the concept of scarcity? - There are alternative uses of air. If we allow firms to avoid cleanup costs by polluting the air, we give up the healthful benefits of clean air. | yes. |
| Does the following completely reflect the concept of scarcity? -There are many enjoyable or useful ways to spend your "free time in the evening, and the cost of one activity is the value of the next-best activity that must be foregone. | yes. |
| Does the following completely reflect the concept of scarcity? - all the salt water they could ever want is freely available to shipwreck survivors adrift in the middle of the pacific ocean. | no. |
| Does the following completely reflect the concept of scarcity? - There are many competing uses for the annual budget of your city, county or state. | yes. |
| Is the following an example of capital? - a person's skills and abilities that can be employed to produce valuable goods and services. | no. |
| Is the following an example of capital? - a person's ability to organize the productive resources and manage a business enterprise. | no |
| Is the following an example of capital? - seams of coal, geologic strata containing oil, groundwater basins, and marine fisheries. | no. |
| Is the following an example of capital? - computers used by a company to record inventory, sales, and payroll. | yes. |
| Labor Resource | a person's skills and abilites that can be employed to produce valuable goods and services. |
| Natural Resource | land, bodies of water, minerals, etc. ex: seams of coal, geologic strata containing oil, groundwater basins, marine fisheries |
| Entrepreneurship | the talent of a person who tries to discover and exploit profitable activities. ex: a person's ability to organize the factors of production and manage a business enterprise. |
| is the following an example of a good? - Medical advice provided by a physician | no |
| is the following an example of a good? - milk and cheese produced by a dairy | yes |
| is the following an example of a good? -seams of coal, geologic strata containing oil, groundwater basins, and marine fisheries. | no |
| can medical advice provided by a physician be considered a service? | yes |
| scarcity | less of something is available than people want at a zero price. |
| True or False: Opportunity Cost represents the least valuable of the various alternatives that must be given up when a choice is made in the context of scarcity. | false |
| True or False: Opportunity Cost represents the most valuable of the various alternatives that must be given up when a choice is made in the context of scarcity | true |
| True or False: The opportunity cost of the time you are allocating to this quiz is subjective, and only you know the expected value of the best alternative foregone. | true |
| In terms of opportunity cost _____ is the ultimate constraint. | time |
| While opportunity cost is subjective, in some circumstances, the money paid for goods and services is a good approximation of their opportunity cost. | true |
| True or False: Different people will generally have the same opportunity cost of engaging in some activity, such as attending opera. | false |
| True or False: opportunity cost has nothing to do with scarcity. | false |
| True or False: Opportunity cost may vary with circumstances | true |
| Law of Comparative Advantage | states that the individual, firm, region, or country with the lowest opportunity cost of producing a particular good should specialize in producing that good. |
| True or False: Resources are allocated most efficiently across the country and around the world when traders specialize in producing those goods for which they have a comparative advantage. | true |
| Barter | Bartering involves the direct exchange of one good for another without the use of money. |
| Prodcuction Possibilites Frontier | The PPF is a curve showing alternative combinations of goods that can be produced when available resources are used efficiently |
| True or False: Households supply labor, capital, land, and entrepreneurial ability to resource markets and demand goods and services from product markets. | true |
| True or False: Households demand goods and services in product markets and supply labor, capital, land, and entrepreneurial ability in resource markets | false |
| true or false: Households receive income from selling goods and services in product markets and spend money on labor, capital, land and entrepreneurial ability in resource markets | false |
| 2 key differences in households today relative to those in the 19th century are that households today have _____ and ______. | - increased household reliance on markets for goods and services. and - higher rates of female employment outside the home. |
| True or False: Economists use the term "utility" to refer to the usefulness of a good or service, and so consequently aesthetic products like art, music, and vacations have no utility. | false |
| Which of the following represents the most valuable resource sold by most households? a. land b. labor c. capital d. entrepreneurial ability | b. labor |
| Households spend _____% of personal income on consumption, as opposed to savings or taxes. | 80% |
| True or False: - before the modern manufacturing firm evolved during the industrial revolution in Great Britain, entrepreneurs "put out" production to rural households in what came to be known as the cottage industry system. | false |
| True or False: Firms are economic units centered around households that supply factors of production (labor, capital, land and entrepreneurial ability) to the resource market, and use the resulting income to buy goods and services in the product market. | false |
| Why does some household production of goods and services still occur? | household production occurs when the householder's opportunity cost of performing a task exceeds the market price of the task. |
| The information revolution spawned by computer & network technology has allowed a return to ____ in "virtual" home offices. Workers anywhere in the world who have a computer, telephone line, modem, fax machine can now produce documents in homes & firms. | cottage industry production |
| sole proprietorship has ______, whereas partnership has ______. | single owner, receiving the firm's profit and bearing inlimited liability; multiple owners sharing the firm's profit and bearing unlimited liability. |
| Economic Concept of Demand | A relation showing the quantities of a good that consumers are willing and able to buy at various prices during a given period of time, other things constant. |
| Law of demand | states that the quantity of a good demanded in a given time period is inversely related to its price, other things constant. |
| True or False: According to the substitution effect, a drop in price increases real income (purchasing power), and if the good is normal, consumers will respond by buying more of the good in question. Thus a drop in price increases quantity demanded. | false |
| True or False: a demand curve is a graphical representation of a demand schedule. | true |
| True or False: if the price of tofu falls, the quantity demanded of tofu will increase,but the demand curve for tofu will remain unchanged | true |
| a rightward shift in the demand curve is called | an increase in demand |
| True or False: an increase in the price of tofu-burgers (percieved as a substitute for veggie burgers) would most likely cause the demand for veggie burgers to increase. | true |
| True or False: a decline in customer income would most likely cause the market demand for a normal good to decrease | true |
| True or False: a decrease in the price of a substitute for a good would cause movement downward along the given demand curve for a normal good, leading to an increase in quantity demanded | false |
| True or False: An increase in the price of a complementary good would cause movement downward along the given demand curve for a normal good, leading to an increase in quantity demanded. | false |
| True or False: a decline in the price of a good would cause movement downward along the given demand curve for a normal good, leading to an increase in quantity demanded. | true |
| True or False: Consumer expectations that a good will be more expensive in the near future would cause movement downward along the given demand curve for a normal good, leading to an increase in quantity demanded. | false |
| Elasticity is another word for___________. | responsiveness |
| True or False: if the positive effect of a greater quantity demanded exceeds the negative effect of a lower price, total revenue will fall, and that portion of the demand curve is inelastic. | false |
| if the positive effect of a greater quantity demands exceeds the negative effect of a lower price, total revenue will fall, and that portion of the demand curve is elastic. | true |
| True or False: if the demand curve is linear, consumers are more responsive to a given price change when the initial price is low than when the initial price is high. | false |
| True or False: a horizontal demand curve has constant elasticity. | true |
| True or False: a vertical demand curve has constant elasticity | false |
| True or False: a vertical demand curve has constant inelasticity | true |
| True or False: an upward-sloping linear demand curve has constant elasticity | false |
| True or False: a downward sloping demand curve with constant slope has constant elasticity | false |
| If a person buys the same number of a good regardless of it's price, the person's demand for the good is __________ | perfectly inelastic |
| Economists assume that tastes are given and are _______ | relatively stable |
| Utility | measures the satisfaction, or pleasure, that people recieve from consuming a good or service |
| Marginal utility | the change in total utility derived from a one-unit change in consumption of a good. |
| True or False: the law of diminishing marginal utility states that as more and more units of a good or service are consumed, total utility becomes smaller and smaller | false |
| the law of diminishing marginal utility states that as more and more units of a good or service are consumed, marginal utility becomes smaller and smaller | true |
| developing numerical values for utility allows us to________. | be more specific about the utility an individual derives from consumption, but each individual has a uniquely subjective utility scale. |
| True or False: If a good is free, people will continue to increase consumption until utility is equal to zero | true |
| In the consumer choice problem, consumers are confronted with: | - set of different consumer goods & services to choose from -set of prices for those G&S to choose from - finite budget that constrains what consumer can buy - preferences/ utility associated with consuming different quantities of each of the diff. G |
| True or False: it is consistent with utility maximization for Juan to buy a $2 strawberry and papaya smoothie for which he gets 20 units of marginal utility, instead of a $1.50 pizza for which he gets 10 units of marginal utility | true |
| ________ costs represent a firm's opportunity cost of using its own resources or those provided by its owners ________ a corresponding cash payment | implicit ; with |
| True or False: the wages a firm pays to its workers is an explicit cost. | true |
| True or False: the opportunity cost of an owner/entrepreneur's time invested in the firm is an example of explicit cost. | false |
| True or False: accounting profit is total revenue - total cost, including both explicit and implicit costs. | false |
| True or False: economic profit is total revenue - total cost, including both explicit and implicit costs | true |
| True or False: normal economic profit is zero. zero economic profit means that all resources used by the firm earn their opportunity cost | true |
| a firm earns normal economic profit when accounting profit equals ___________. | total implicit cost |
| True or False: a firm earns normal economic profit when accounting profit equals zero. | false |
| True or False: a firm earns normal economic profit when accounting profit equals total implicit cost | true |
| True or False: a firm earns normal economic profit when accounting profit equals total explicit cost. | false |
| True or False: variable resources such as labor are given that name because they can be varied relatively quickly to change the firm's output rate. in contrast, fixed resources such as size of building or production facility take more time to adjust. | true |
| True or False: In the short run, at least one of a firm's resources is fixed, while in the long run all the resources under the firm's control are variable. | true |
| True or False: The short run corresponds to the anticipated remaining life span of the owner/entrepreneur | false |
| True or False: In the long run at least one of a firm's resources is fixed, while in the short run all the resources under a firm's control are variable. | false |
| production function | the relationship between the amount of resources employed and the total output produced by a firm. |
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