Fundamental Economic Concepts

Which statement describes an opportunity cost that could result from the government regulating businesses?
Government regulations can lead to an increase in production costs.
What type of resource does the data in the chart represent?
Mr. Green is opening a new bakery. He has purchased an industrial oven which can accommodate twenty loaves of bread at a time. This oven represents which factor of production?
How might the purchase decisions of consumers impact a market economy?
By buying some products, but not others, consumers might determine what is produced.
If a marginal analysis concludes that the productivity of a firm is at its optimal output, what would the firm have to do to increase revenue?
increase the price of the product
Which of these terms is the BEST synonym for the word “entrepreneur”?
“business owner”
The United States government is LEAST LIKELY involved in the nation’s economy as a
planner deciding what to produce.
Which of these BEST represents capital investment for a company?
buying new equipment
How does the activity in this image represent specialization?
This worker is completing one of many parts of a final product.
In a mixed market economy, what MIGHT be considered a basic function of government?
to correct market failures and redistribute income
Before the opening of his sporting goods store, Mr. Stevens researches the types of sports equipment most likely to sell in his area. The knowledge gained in this research is an example of
human capital.
The process by which the Federal Reserve controls the supply, availability, and cost of money in order to keep the economy stable is
monetary policy.
Someone who creates a system to offer a product or service in order to obtain a profit is called
an entrepreneur.
How do private property rights encourage individuals to work, save, and invest?
Individuals can keep the gains they earn.
An essential part of a market economy is the expectation, in both producers and consumers, that they will be able to keep and use products freely. This is governed by an area of legislation known as
property rights.
Workers on an assembly line are an example of
Increased education and training within a nation will most likely result in
an increase in Gross Domestic Product (GDP).
An opportunity cost is
the next-best alternative you give up in order to do something else.
In a market economy, prices are established by
consumers and labor unions.
When a producer calculates profitability (revenue minus costs), all of these will contribute to higher profitability EXCEPT
minimizing units sold.
These facts show that Brazil has a
mixed economy.
Countries with a low standard of living, little industrial output, and a low Gross Domestic Product are referred to as
developing countries.
For a market economy to function well, it is MOST important that laws be passed to protect the right to
Which point on the production possibilities curve could represent a situation in which there was a scarcity of materials needed to make products X and Y?
A measure of the amount of output produced by a given amount of inputs in a specific period of time is the definition of
Under which economic system would factors of production MOST LIKELY be owned by the government?
command economy
What is the opportunity cost of saving money to purchase a car?
the interest paid if you borrowed the money
Which economic concept would MOST likely account for a move on the curve from point “A” to point “B”?
As one of the factors of production, capital can be defined as
the equipment and factories needed to produce goods.
What MIGHT be the purpose of government regulation of natural monopolies, or economies of scale?
Government regulation might be used to facilitate competition.
New e-commerce businesses, including companies like eBay, focus on voluntary exchange. Which generalization BEST describes this type of commerce?
Decentralized decision-making results in buyers and sellers freely engaging in commerce.
Bart has decided to buy some water balloons rather than get an extra milk at lunch. Choosing among economic alternatives is referred to as
a trade-off.
Which choice BEST expresses why widespread pirating of goods would be damaging to a market economy?
Producers would be unwilling to produce new goods.
In a command economy, how are the prices of goods and services determined?
the central government
Which scenario is the BEST example of how the government would act in a market economy?
The government stops a factory from producing imitations of an expensive type of purse.
In order to decrease fuel consumption in the US, the EPA (Environmental Protection Agency) has raised standards for fuel efficiency on cars sold here. One economic assumption made by the EPA is that, since our economic system is mostly market based,
consumers will shop for more fuel-efficient cars.
The study of how individuals, institutions, and society make optimal choices under the conditions of scarcity is
Which of these is an example of how the U.S. Constitution protects the free enterprise system?
Congress is given the authority to grant patents and copyrights.
When the amount of output produced by a given amount of inputs increases, the MOST LIKELY result is
overall productivity rises.
Communism and socialism are usually found in what type of economic system?
Which example of productive resources is matched correctly?
capital and oil rig
One advantage of a market economy is its ability to
adjust to changes over time.
The graph is a production possibilities chart. Which of these might cause the line to move to the right?
improved technology in whoopee cushion production
In markets both parties are better off when they engage in voluntary, non-fraudulent exchange. What is the role of government in promoting such exchange?
The governments role is to create legislation to prevent fraud.
All of these are characteristics of a ___ economy.
Which of these is NOT something whose construction would be determined by the government?
A shopping mall
Although specialization increases productivity, one disadvantage is
loss of flexibility among workers.
Sean and Sarah’s situation is an example of
voluntary exchange.
If a government wanted to improve the productivity of its human resources it could
expand funding and opportunities for vocational training.
Which of these is a correct description of one of the ways in which a command economy differs from a market economy?
In a command economy, individuals have less economic freedom.
The opportunity cost of a move from point A to point B is
the decreased production of good Y
Because scarcity exists, any strategy for allocating scarce resources must address
for whom to produce, how to produce, and what to produce.
In many cases, goods produced overseas and shipped here can be sold more cheaply than the same goods produced here. One important reason for this is that
workers’ earnings are much lower in many foreign countries.
Which of these BEST summarizes the opinion of the author regarding regulatory activities of the government?
Regulatory measures often have results contrary to the original intention.
How might consumer credit laws contribute to the empowerment of individuals?
Seller and lender abuses are reduced under consumer credit laws.
In a command economy, how is it determined what goods and services will be produced?
Central government planning decides what will be produced.
What do you think the owner’s decision will be when considering marginal costs and benefits?
The owner will not hire the worker because the marginal costs of $270 per week are greater than the marginal benefits of $250 per week.
A firm conducted a market analysis and determined that a new worker should be hired. If the firm decided the price of the product will remain the same, what change should occur initially to maximize revenue?
The firm should increase output.
A company produces two products, X and Y. All of the points represent possible product output EXCEPT
point D.
In what way does specialization increase productivity?
Specialization reduces the cost of production.
“Marginal benefit” is MOST related to what economic concept?
opportunity cost
Freedom to own the factors of production, subsidized transportation services, and involuntary spending and investments are all examples of
mixed economies.
In this production possibilities graph, what MIGHT cause the line (frontier) to move to the left?
shortage of needed raw materials
Land, labor, capital, and entrepreneurship are the
factors of production.
What is the MOST LIKELY result of specialization in producing Products A and B?
The increased output means the U.S. and Japan can trade excess units of Products A and B.
The MOST LIKELY incentive for entrepreneurs to start a new business is
to make a profit.
Which statement reflects an accurate argument in favor of a command economy?
It ensures continuous use of all available resources.
Which of these is the BEST example of how the free enterprise system of the United States promotes individual initiative?
Authors can have original works copyrighted.
The term “consumer sovereignty” means
consumer choices ultimately determine which goods and services are produced.
Rationing is a system under which an agency such as the government decides everyone’s “fair” share. Rationing has often been used during wartime. If people receive a set ration regardless of the amount of work completed, how would this affect peoples’ incentive to work?
People might feel less inclined to work
How does a traditional economy differ from a capitalist economy?
In a traditional system, economic decisions are based on custom.
Workers concentrating their efforts on a limited number of tasks, thereby increasing productivity is called
The LEAST LIKELY result of the passage of the Airline Deregulation Act of 1978 was
a decreased average level of safety for passengers.
In laissez-faire economics, what is the role of the government in the economy?
to help maintain competition
Acme Furniture Manufacturers has just purchased a large supply of exotic lumber that is ready for use in their new line of furniture. This purchase BEST represents which of the factors of production?
Mr. Stevens owns a building in downtown Bentonville. He has considered opening a sporting goods store in the building but has also been approached by someone who would like to rent the space to open a gym. If Mr. Stevens decides to open his sporting goods store, what is the opportunity cost of this decision?
the opportunity to rent it to another tenant
According to the information from the U.S. Department of Labor, which factor has the GREATEST impact on raising labor productivity?
education & skill
What generalization about educational attainment and annual earnings can be made according to the graph?
Investment in education can lead to higher annual earnings.
An economy experiencing high levels of unemployment would most likely be producing at which point?
point C
The graph shows how many basketballs and how many whoopee cushions can be produced given a limited supply of resources. Such a graph is called a
production possibilities graph.
Which scenario is LEAST LIKELY to occur in a market economy?
The government allows only two competitors to offer goods for sale on the country’s highways.
How can firms use marginal analysis to determine the price of a product?
Marginal analysis can be used to determine at what price profit maximization occurs.
These facts provide evidence that Canada has a
mixed economy.
Australia has one of the most advanced market economies in the world, meaning the majority of economic decisions are made by
the producers and consumers of products.
A government that operates a market economy MIGHT become involved in the economy
to provide public goods and services to its citizens.
In a society with a market economy, property rights are generally enforced by
the courts.
Which type of cost occurs when an individual pays for a piano lesson instead of going to a movie?
opportunity cost
Consumer sovereignty assumes that which fundamental statement in a market economy is true?
Through purchase choices, buyers determine the production of goods.
As developing nations industrialize and make use of capital resources, new challenges to the supply of the world’s natural resources will no doubt appear because
the rate of depletion will increase as developing countries begin to use more natural resources.
In the mid-2000s problems with corporations such as Enron, Worldcom, and Tyco demonstrated renewed and growing public concern about
unchecked business practices.
Which statement is a PRIMARY characteristic of a capitalist system?
private ownership of property
In the United States, what independent federal agency works to preserve free enterprise by assisting entrepreneurs?
Small Business Administration
Firms use marginal analysis to determine prices by
Businesses have greater access to resources.
How might the development of the internet increase productivity?
Businesses have greater access to resources.
Lee’s company of nine workers produces 150 units of a product with a marginal cost of $10 for the last unit. The product sells for $12 per unit. If Lee adds one additional worker, the marginal cost would be $13. In this case, Lee should
keep the number of workers at nine.
Why is the consumer considered “king” in a capitalist economy?
consumers determine what products will be produced
Some products (such as roads, sewer systems, and railroads) are not adequately supplied by the marketplace acting alone. Therefore, choices about building such things are made by
· ditch digger
· computer programmer
· international financier
ALL of these are examples of
human resources.
In capitalist economies, prices are
determined by supply and demand.
Firms use marginal analysis to determine production output levels by
studying the effect on revenue of small changes to the number of items produced.
According to the FTC, how does the ECOA empower individuals?
Credit cannot be denied based on unrelated factors.
What fundamental question relates most directly to consumer sovereignty?
Who will get the goods and services?
A small company must determine all the possible combinations of goods and services it can produce, given its limited resources and current available technology. What resource should they develop to investigate these options?
production possibilities curve
Which of these is something whose construction MOST LIKELY would be determined by the government?
An airport
If businesses use the internet to find less expensive resources, what will be the impact on productivity?
Productivity will increase as the price of resources decreases.
Scarcity is the basic economic condition that results from society not having enough resources to produce all the things people would like to have. A society’s economic system determines
the way a society allocates its scarce resources to produce goods and services.
All of these are reasons that the government usually decides the amount of public goods (roads, sewers, etc.) that are produced, EXCEPT
Individuals are less likely to make informed decisions.
In which country would you MOST expect to find state-controlled industry, the greatest amount of restrictions on private business ownership, and the majority of the population working for the government?
What effect might high worker productivity have on determining the earnings of workers?
The more productive workers are, it might increase their earnings.
Which nation’s economy could best be described as a command economy, where the government determines guidelines for economic development and sets goals for economic production?
What is the primary purpose of job specialization?
increased efficiency and productivity
In this type of economic system, the government controls all aspects of the economy and makes all decisions about what goods will be produced, who will produce them, and how they will be produced.
In which kind of economy are prices determined by supply and demand and by government actions?
A production possibilities curve deals with which of these concepts?
opportunity costs
How do private property rights contribute to a capitalist system?
Individuals are free to own the resources used to produce goods.
In a market economy, these functions are generally the responsibility of which group?
Suppose the government passed a law, taxing manufacturers according to the amount of pollutants they released into the environment. This law would be an example of which regulatory function of the government?
regulate negative externalities
Investment in education, training, and skill development has been linked to
increasing earnings for workers.
In 1776 with An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith challenged the prevailing belief in mercantilist policies. The characteristic of capitalism that buyers and sellers will freely and willingly exchange in market transaction is called
voluntary exchange.
In a free enterprise system, what motivates individuals to start a business?
the desire to earn a profit
Productivity may BEST be defined as
the ratio of outputs to inputs.
Mr. Simpson has decided to start a new company to produce bobble-head dolls. He has hired a contractor to build his factory and a manager to run the company for him. Mr. Simpson PRIMARILY represents which factor of production?