Econ Midterm Review 1

Scarcity is when...

• we have unlimited wants and unlimited resources

• our wants are greater than available resources

• our resources are greater than our wants

• resources are employed fully to minimize waste

Answer explanation

Scarcity is when our wants are greater than the available resources.

Instead of studying for your test, you could have cooked dinner, went to the movies, or exercised. These alternatives represent your...

• scarcity

• resources

• trade-offs

• time value of money

Answer explanation

Trade-offs are the alternatives to a specific choice we make. (The next best option to the choice you make is your opportunity cost.)

A point located inside the production possibilities curve is thought of as...

• an inefficient use of resources

• an efficient use of resources

• not possible given current resources

• a better use of resources

Answer explanation

A point inside the PPC represents an inefficient use of resources, like high unemployment. (recession)

A PPC that is bowed outward represents...

• decreasing opportunity costs

• constant opportunity costs

• no opportunity costs

• increasing opportunity costs

Answer explanation

A bowed out PPC means that with each additional unit of good A that is produced, you must give up an increasing number of units of good B. This shape typically means that the resources used to produce both goods vary (for example, bicycles and tacos).

When making a rational decision, economists would point out that...

• marginal cost is of no significance

• marginal benefit is of no significance

• marginal benefit should be less than marginal cost

• marginal benefit should outweigh marginal cost

Answer explanation

In economics, we consume or do something until the marginal cost outweighs the marginal benefit.

Which if the following is NOT a characteristic of a well-functioning command economy?

• central decision-making body  

• property rights

• scarce resources

• supply

Answer explanation

In a pure command (socialist) economy, all resources are owned by the government and shared.

The factors of production include land, labor, capital and...

• entrepreneurship

• supply and demand

• externalities

• deficits

Answer explanation

4 factors of production: land, labor, capital and entrepreneurship; entrepreneurs take risks in return for potential rewards.

The three key economic questions are:

• What should be produced?

  How to produce?

  Who should we produce for?

• How to produce?

  How much do we make?

  What is my profit?

• Who should we produce for?

  What is my profit?

  What should we charge for the product?

• How much do we produce?

  Who should we produce for?

  What is the tax?

What is economics?

• The study of a government's distribution of resources

• The study of consumers' spending habits

• The study of a society's allocation of resources

• The study of buying and selling in the stock market

________ are decisions we all must make due to scarcity.

• trade offs

• scarcity

• choice

• incentive