Thinking Like an Economist-Part one

An economic model can accurately explain how the economy is organized because it is designed to include, to the extent possible, all features of the real world.

• True

• False

In the circular-flow diagram, factors of production are the goods and services produced by firms.

• True

• False

Points outside the production possibilities frontier represent infeasible levels of production.

• True

• False

The circular-flow diagram

• is an economic model.

• incorporates two types of decision makers: households and firms.

• represents the flows of inputs, outputs, and dollars.

• All of the above are correct.

The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and

• society’s preferences.

• the available production technology.

• a fair distribution of the output.

• the available demand for the output.

Someone buys a car in exchange for a large amount of money. They have completed an exchange in which part of the circuclar flow model?

• Product Market

• Factor Market

• Firms

• Individuals

A firm is looking to purchase a new machine and factory. In the circular flow diagram, this transaction will take place in the

• Product market.

• factor (input) market

• Foreign Exchange market

• Public market