Micro Ch_2 Vocabulary Review Quiz

Allocative efficiency is achieved when resources are distributed in a way that maximizes the total benefit to society. Which of the following best describes allocative efficiency?

• Resources are used in a way that maximizes total production.

• Resources are distributed in a way that maximizes total benefit to society.

• Resources are allocated equally among all individuals.

• Resources are used to minimize costs.

What is a budget constraint? All possible consumption combinations of goods that someone can afford, given the price of goods, when all income is spent; or the boundary of the opportunity set/line on a graph for the two items.

• A budget constraint is a financial plan for saving and spending.

• A budget constraint is a limit on the amount of money that can be borrowed.

• A budget constraint is all possible consumption combinations of goods that someone can afford, given the price of goods, when all income is spent; or the boundary of the opportunity set/line on a graph for the two items.

• A budget constraint is a measure of economic growth.

What is comparative advantage? When a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production than other countries.

• When a country can produce a good at a lower cost in terms of other goods.

• When a country has a lower opportunity cost of production than other countries.

• When a country can produce more goods than other countries.

• When a country has a higher opportunity cost of production than other countries.

What is the invisible hand? Adam Smith’s concept that individual’s self-interested behavior can lead to positive social outcomes.

• A metaphor for government intervention in the economy.

• A concept that suggests self-interested behavior leads to negative outcomes.

• Adam Smith’s concept that individual’s self-interested behavior can lead to positive social outcomes.

• A theory that promotes collective decision-making over individual choices.

The law of diminishing marginal utility states that as a person consumes more units of a good, the additional satisfaction gained from consuming each additional unit will:

• Increase

• Decrease

• Remain constant

• Fluctuate randomly

What is the law of diminishing returns? As we add additional increments of resources to producing a good or service, the marginal benefit from producing those increments will decline.

• The marginal benefit increases with each additional resource.

• The marginal benefit remains constant with each additional resource.

• The marginal benefit declines with each additional resource.

• The marginal benefit becomes zero with each additional resource.

What is the law of comparative advantage? Each producer should produce the good for which there is a lower opportunity cost than other products.

• True

• False

What is marginal analysis? An examination of decisions on the margin, meaning a little more or a little less from the status quo.

• An examination of decisions on the margin, meaning a little more or a little less from the status quo.

• A comprehensive analysis of all possible decisions.

• A focus on long-term strategic planning.

• An evaluation of past decisions.

What is a normative statement?

• A statement which describes how the world is.

• A statement which describes how the world should be.

• A statement which describes historical events.

• A statement which describes scientific facts.

Opportunity cost measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative.

• True

• False