30 Questions
According to the text, what motivated Isaac Newton to develop a theory of gravity?
Observing an apple fall from an apple tree
What is the interplay between theory and observation in the field of economics?
Observation leads to theory development
Why is it challenging for economists to conduct experiments?
Economists are not allowed to manipulate monetary policy
What does the theory of inflation mentioned in the text assert?
High inflation is caused by printing too much money
What would make an economist doubt the validity of their theory of inflation?
Observing that money growth and inflation are unrelated
What type of data do economists usually have to work with?
Data collected from international sources
What is the relationship between money growth and inflation according to international data?
They are strongly correlated
According to the text, what is the opportunity cost of going to college?
The money you would have earned if you worked instead
Which of the following is NOT considered a factor of production according to economists?
Entrepreneur
What does utility represent in economics?
The ability of something to satisfy needs or wants
What does the law of diminishing marginal utility state?
As a person increases consumption of a product, there is a decline in the marginal utility derived from each additional unit
What does the law of diminishing marginal returns state?
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
What do economists use to learn about the world?
Models composed of diagrams and equations
What is the fourth factor of production that is often debated?
Entrepreneur
According to the text, what is the purpose of using a model in economics?
To simplify our thinking about the economy
What is the circular-flow diagram in economics used to represent?
The interactions between households and firms in the economy
What does the production possibilities frontier graph show?
The various combinations of output that an economy can produce given available resources and technology
What does an efficient point on the production possibilities frontier represent?
The economy is getting all it can from the scarce resources it has available
According to the text, what does the opportunity cost of one good in terms of another mean?
The amount of one good that must be given up to produce more of the other
What is productive efficiency according to the text?
Using resources in the best possible way to create the most output
What is allocative efficiency according to the text?
Meeting the needs and wants of the society the most and producing exactly what the society desires
Which term refers to the uncontested superiority of a country or business to produce a particular good better?
Absolute advantage
What does comparative advantage introduce as a factor for analysis in choosing between different options for production diversification?
Opportunity cost
Which one of these influences how and why nations and businesses devote resources to the production of particular goods?
Comparative advantage
What is the purpose of analyzing opportunity cost in the context of production diversification?
To determine resource allocation
Which one of these terms refers to the analysis of different options for production diversification?
Production diversification
What does absolute advantage refer to?
Uncontested superiority in producing a particular good
In the context of production diversification, what does comparative advantage consider?
Opportunity cost
What is the main focus of absolute advantage?
Uncontested superiority in production
What does comparative advantage introduce into the analysis of production diversification?
Opportunity cost
Test your understanding of the circular-flow diagram and its role in modeling the economy. Explore the key concepts of buying, selling, working, hiring, and manufacturing to gain insights into how the economy functions.
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