Circular-Flow Diagram Quiz
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Questions and Answers

According to the text, what motivated Isaac Newton to develop a theory of gravity?

  • Observing an apple fall from an apple tree (correct)
  • Manipulating a nation's monetary policy
  • Observing rapid increases in prices
  • Analyzing data on prices and money

    • What is the interplay between theory and observation in the field of economics?

  • Observation and theory are interchangeable
  • Observation leads to theory development (correct)
  • Theory leads to observation
  • Observation and theory are unrelated

    • Why is it challenging for economists to conduct experiments?

  • Experiments are difficult to manipulate
  • Economists have limited data
  • Economists are not allowed to manipulate monetary policy (correct)
  • Economists lack access to laboratories

    • What does the theory of inflation mentioned in the text assert?

    <p>High inflation is caused by printing too much money</p> Signup and view all the answers

    What would make an economist doubt the validity of their theory of inflation?

    <p>Observing that money growth and inflation are unrelated</p> Signup and view all the answers

    What type of data do economists usually have to work with?

    <p>Data collected from international sources</p> Signup and view all the answers

    What is the relationship between money growth and inflation according to international data?

    <p>They are strongly correlated</p> Signup and view all the answers

    According to the text, what is the opportunity cost of going to college?

    <p>The money you would have earned if you worked instead</p> Signup and view all the answers

    Which of the following is NOT considered a factor of production according to economists?

    <p>Entrepreneur</p> Signup and view all the answers

    What does utility represent in economics?

    <p>The ability of something to satisfy needs or wants</p> Signup and view all the answers

    What does the law of diminishing marginal utility state?

    <p>As a person increases consumption of a product, there is a decline in the marginal utility derived from each additional unit</p> Signup and view all the answers

    What does the law of diminishing marginal returns state?

    <p>As the number of new employees increases, the marginal product of an additional employee will at some point be less than the marginal product of the previous employee</p> Signup and view all the answers

    What do economists use to learn about the world?

    <p>Models composed of diagrams and equations</p> Signup and view all the answers

    What is the fourth factor of production that is often debated?

    <p>Entrepreneur</p> Signup and view all the answers

    According to the text, what is the purpose of using a model in economics?

    <p>To simplify our thinking about the economy</p> Signup and view all the answers

    What is the circular-flow diagram in economics used to represent?

    <p>The interactions between households and firms in the economy</p> Signup and view all the answers

    What does the production possibilities frontier graph show?

    <p>The various combinations of output that an economy can produce given available resources and technology</p> Signup and view all the answers

    What does an efficient point on the production possibilities frontier represent?

    <p>The economy is getting all it can from the scarce resources it has available</p> Signup and view all the answers

    According to the text, what does the opportunity cost of one good in terms of another mean?

    <p>The amount of one good that must be given up to produce more of the other</p> Signup and view all the answers

    What is productive efficiency according to the text?

    <p>Using resources in the best possible way to create the most output</p> Signup and view all the answers

    What is allocative efficiency according to the text?

    <p>Meeting the needs and wants of the society the most and producing exactly what the society desires</p> Signup and view all the answers

    Which term refers to the uncontested superiority of a country or business to produce a particular good better?

    <p>Absolute advantage</p> Signup and view all the answers

    What does comparative advantage introduce as a factor for analysis in choosing between different options for production diversification?

    <p>Opportunity cost</p> Signup and view all the answers

    Which one of these influences how and why nations and businesses devote resources to the production of particular goods?

    <p>Comparative advantage</p> Signup and view all the answers

    What is the purpose of analyzing opportunity cost in the context of production diversification?

    <p>To determine resource allocation</p> Signup and view all the answers

    Which one of these terms refers to the analysis of different options for production diversification?

    <p>Production diversification</p> Signup and view all the answers

    What does absolute advantage refer to?

    <p>Uncontested superiority in producing a particular good</p> Signup and view all the answers

    In the context of production diversification, what does comparative advantage consider?

    <p>Opportunity cost</p> Signup and view all the answers

    What is the main focus of absolute advantage?

    <p>Uncontested superiority in production</p> Signup and view all the answers

    What does comparative advantage introduce into the analysis of production diversification?

    <p>Opportunity cost</p> Signup and view all the answers

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