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Economics Chapter 3 Study Guide Flashcards
61 Questions
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Economics Chapter 3 Study Guide Flashcards

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Questions and Answers

Countries with high labor costs tend to:

  • Rely on only one method for the production of goods.
  • Use more capital rather than labor in the production process. (correct)
  • Use more labor rather than capital in the production process.
  • Be relatively poor countries.

    • The circular flow of economic activity is a model of the:

  • Role of unions and government in the economy.
  • Flow of goods, services, and payments between households and firms. (correct)
  • Influence of government on business behavior.
  • Economy's banking system.
  • Interaction among taxes, prices, and profits.

    • Which of the following best characterizes the circular flow of income?

  • Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses. (correct)
  • The government purchases resources from businesses and households and then sells goods and services to businesses and households.
  • Households buy factors of production from businesses, and businesses buy goods and services from households.
  • Businesses buy resources from the government, and households buy goods and services from businesses.

    • In the circular flow diagram, goods and services:

    <p>Flow in a counterclockwise direction.</p> Signup and view all the answers

    In the circular flow diagram, payments for goods and services:

    <p>Flow in a clockwise direction.</p> Signup and view all the answers

    The respective payments for capital, entrepreneurship, land, and labor are:

    <p>Interest, profits, rent, and wages and salaries.</p> Signup and view all the answers

    Currently, it is not possible to produce at:

    <p>Point E.</p> Signup and view all the answers

    An economy is operating at full employment, and then workers in the bread industry are laid off. This change is portrayed in the movement from:

    <p>C to F.</p> Signup and view all the answers

    Along the production possibilities curve, the most efficient point of production depicted is:

    <p>All points on the production possibilities curve are equally efficient.</p> Signup and view all the answers

    The most inefficient point depicted is:

    <p>Point G.</p> Signup and view all the answers

    A movement from Point B to Point C:

    <p>Involves sacrificing wine in order to produce a greater quantity of bread.</p> Signup and view all the answers

    A movement from Point G to Point F:

    <p>Involves no sacrifice of output, as both more wine and bread can be produced if available resources are used more efficiently.</p> Signup and view all the answers

    A movement from Point C to Point B:

    <p>Involves sacrificing bread in order to produce a greater quantity of wine.</p> Signup and view all the answers

    At Point A:

    <p>Only wine is produced.</p> Signup and view all the answers

    A production possibilities curve is negatively sloped because:

    <p>Once on the frontier, it is only possible to increase production of one good by reducing production of the other.</p> Signup and view all the answers

    The concavity (bowed-out shape) of the production possibilities curve is the result of:

    <p>The law of increasing opportunity cost.</p> Signup and view all the answers

    A technological advance that increases the productivity of all inputs is best illustrated as:

    <p>An outward shift of the production possibilities curve.</p> Signup and view all the answers

    Economic growth can be illustrated by:

    <p>An outward shift of the production possibilities curve.</p> Signup and view all the answers

    The private ownership of property and the use of the market system to direct and coordinate economic activity is most characteristic of:

    <p>A market economy.</p> Signup and view all the answers

    A point beyond the boundary of an economy's production possibilities curve is:

    <p>Unattainable.</p> Signup and view all the answers

    Consumer sovereignty describes how individual consumers in market economies determine what is to be produced.

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

    Command economies rely on central planning, where decisions about what and how many are largely determined by a government official associated with the central planning organization.

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

    All economies, regardless of political structure, must decide how, from several possible ways, to produce the goods and services that they want.

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

    In any economy, it would always be less efficient to dig ditches by having many workers use their hands than to use workers with shovels or a backhoe.

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

    Each nation tends to use the production processes that conserve its relatively scarce (and thus relatively more expensive) resources and use more of its relatively abundant resources.

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

    In a market economy, with private ownership and control of the means of production, the amount of output one is able to obtain depends on the quantity and quality of the scarce resources that the individual controls.

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

    The market where households sell the use of their inputs to firms is called the product market.

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

    The circular flow model illustrates the continuous flow of goods, services, inputs, and payments between firms and households.

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

    With a straight-line production possibilities curve, the opportunity cost of producing another unit of a good increases with its output.

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

    The economy cannot produce beyond the levels indicated by the production possibilities curve during a given time period, but it is possible to operate inside the production possibilities curve.

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

    Underutilized resources or those not being put to their best uses are illustrated by output combinations along the production possibilities curve.

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

    We all have an interest in the efficient use of all of society's resources because more of everything we care about can be available for our use as a result.

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

    If resources are being used efficiently, at a point along a production possibilities curve, more of one good or service requires the sacrifice of another good or service as a cost.

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

    The basic reason for increasing opportunity cost is that some resources and skills cannot be easily adapted from their current uses to alternative uses.

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

    Investing in capital goods will increase the future production capacity of an economy, so an economy that invests more now (consumes less now) will be able to produce, and therefore consume, more in the future.

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

    An economy can grow despite a lack of qualitative and quantitative improvements in the factors of production.

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

    Economic growth means a movement along an economy's production possibilities curve in the direction of producing more consumer goods.

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

    From a point inside the production possibilities curve, in order to get more of one thing, an economy must give up something else.

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

    Which of the following is not a question that all societies must answer?

    <p>How can scarcity be eliminated?</p> Signup and view all the answers

    Economic disputes over the distribution of income are generally associated with which economic question?

    <p>Who will get the goods and services?</p> Signup and view all the answers

    Three economic questions must be determined in all societies. What are they?

    <p>What goods and services will be produced? How will the goods and services be produced? Who will get the goods and services?</p> Signup and view all the answers

    The private ownership of property and the use of the market system to direct and coordinate economic activity are most characteristic of?

    <p>A market economy.</p> Signup and view all the answers

    The degree of government involvement in the economy is greatest in?

    <p>A command economy.</p> Signup and view all the answers

    When a command economy is utilized to resolve economic questions regarding the allocation of resources, then?

    <p>The role of markets will be replaced by political decision making.</p> Signup and view all the answers

    In a circular flow diagram?

    <p>Both B and C are true.</p> Signup and view all the answers

    Which of the following is true?

    <p>None of the above are true.</p> Signup and view all the answers

    In the circular flow model?

    <p>Firms demand resources and supply products.</p> Signup and view all the answers

    A point beyond the boundary of an economy's production possibilities curve is?

    <p>Unattainable.</p> Signup and view all the answers

    Which of the following is consistent with the implications of the production possibilities curve?

    <p>If the resources in an economy are being used efficiently, more of one good can be produced only if less of another good is produced.</p> Signup and view all the answers

    Consider a production possibilities curve for an economy producing bicycles and video game players. It is possible to increase the production of bicycles without sacrificing video game players if?

    <p>Any of the above occurs.</p> Signup and view all the answers

    What determines the position and shape of a society's production possibilities curve?

    <p>All of the above.</p> Signup and view all the answers

    Which of the following is the most accurate statement about a production possibilities curve?

    <p>An economy can produce at any point on or inside its production possibilities curve, but not outside the curve.</p> Signup and view all the answers

    Which of the following is most likely to shift the production possibilities curve outward?

    <p>A technological advance.</p> Signup and view all the answers

    Which of the following is least likely to shift the production possibilities curve outward?

    <p>A change in preferences away from one of the goods and toward the other.</p> Signup and view all the answers

    Inefficiency is best illustrated by which of the following?

    <p>Having high levels of unemployment of labor and other resources that could be productively employed.</p> Signup and view all the answers

    Suppose Country A produces few consumption goods and many investment goods while Country B produces few investment goods and many consumption goods. Other things being equal, you would expect?

    <p>The production possibilities curve for Country A to shift out more rapidly than that of Country B.</p> Signup and view all the answers

    A virulent disease spreads throughout the population of an economy, causing death and disability. This event can be portrayed as?

    <p>An inward shift of the production possibilities curve.</p> Signup and view all the answers

    Say that a technological change doubles an economy's ability to produce good X and triples the economy's ability to produce good Y. As a result?

    <p>The opportunity cost of producing units of Y in terms of X forgone will tend to fall.</p> Signup and view all the answers

    What are the three basic economic questions?

    <p>What is to be produced? How are these goods to be produced? For whom are the goods produced?</p> Signup and view all the answers

    How are decisions made differently in a market economy than in planned economies?

    <p>Market economies make decisions through the interaction of buyers and sellers, while planned economies use central planning boards.</p> Signup and view all the answers

    Identify where the appropriate entries go in the circular flow diagram.

    <p>Entries can include factors of production for firms and goods/services for households.</p> Signup and view all the answers

    Study Notes

    Consumer Sovereignty & Economic Systems

    • Consumer sovereignty indicates that individual consumers dictate production in market economies.
    • Command economies operate under central planning, with government officials making key production decisions.
    • All economies must address how to efficiently produce desired goods and services.

    Production Efficiency

    • Using advanced tools (like shovels or machines) increases efficiency over manual labor.
    • Nations favor production methods that utilize abundant resources while conserving scarce resources.

    Market & Circular Flow Model

    • The circular flow model represents the ongoing exchange of goods, services, inputs, and payments among households and firms.
    • Households provide inputs to firms through the factor market, not the product market.
    • Within the circular flow, firms demand resources and supply products.

    Production Possibilities Curve (PPC)

    • The PPC shows the maximum possible output of two goods; operating beyond this curve is unattainable.
    • Efficient resource use is depicted by points on the PPC, while underutilization occurs inside the curve.
    • Moving along the PPC to produce more of one good requires sacrificing some of another, indicating opportunity cost.

    Opportunity Costs & Economic Growth

    • Opportunity costs rise as resource allocation shifts due to factors that cannot easily be transitioned between different uses.
    • Economic growth is achieved by increasing investment in capital goods, expanding future production capacities.

    Economic Distribution Questions

    • Societies must answer which goods to produce, how to produce them, and who receives them.
    • Debate on income distribution primarily revolves around who will receive the goods produced.
    • Market economies answer these questions through decentralized decision-making, unlike planned economies which rely on central authorities.

    Resource Allocation & Efficiency

    • Inefficient use of resources often occurs with unemployment, causing potential production losses.
    • Technological advancements are likely to shift the PPC outward, indicating growth potential.

    Circular Flow Dynamics

    • In the circular flow diagram, households and firms interact through the buying and selling of resources and goods/services.
    • Payments for goods and services flow in a counterclockwise direction, contrasting with the flow of goods and services which circulates clockwise.

    Economic Systems Characteristics

    • A market economy relies on private ownership and market mechanisms for resource allocation.
    • Command economies allocate resources through state control and planning, characterizing economies like Cuba.

    Factors Influencing Production Choices

    • Countries with high labor costs typically adopt capital-intensive production methods to maintain efficiency.
    • Production processes are influenced by resource availability, workforce skills, technology levels, and factory quantity.

    Understanding Resource Utilization

    • Efficient resource use enhances societal welfare by maximizing the availability of desired goods.
    • A clearly defined opportunity cost in production decisions allows economies to prioritize based on needs and resource allocation.### Factor Flows and Markets
    • Economic flows in resource markets progress in a counterclockwise direction.
    • Firms receive inputs (factors of production) in the factor market.
    • Key factors of production include capital, entrepreneurship, land, and labor.

    Payments for Factors of Production

    • Payments that correspond to the factors of production are:
      • Interest for capital
      • Profits for entrepreneurship
      • Rent for land
      • Wages and salaries for labor.

    Production Possibilities Curve (PPC)

    • Point E on the PPC is currently unattainable with existing resources.
    • Layoffs in the bread industry indicate a shift from full employment, moving from Point C to Point F.
    • All points on the PPC, including Points B, C, and D, are equally efficient in production.

    Inefficiency and Efficiency in Production

    • Point G represents the most inefficient point on the PPC.
    • A movement from Point B to Point C represents a sacrifice of wine for a greater quantity of bread.
    • A shift from Point G to Point F implies increased efficiency without sacrificing output.

    Opportunity Costs and Production Sacrifices

    • Moving from Point C to Point B involves sacrificing bread for more wine.
    • At Point A, only wine is produced; no bread is generated.
    • The PPC is negatively sloped because increasing production of one good necessitates a reduction in the other.

    The Nature of the Production Possibilities Curve

    • The concave (bowed-out) shape of the PPC results from the law of increasing opportunity costs.
    • Economic growth is depicted by an outward shift of the PPC, indicating enhanced production capabilities.

    Economic Systems

    • A market economy is characterized by private property ownership and market-driven coordination of economic activities.
    • Points beyond the PPC boundary are defined as unattainable, representing production goals that cannot be achieved with current resources.

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    Prepare for your economics exam with these Chapter 3 flashcards! This study guide covers key concepts such as consumer sovereignty and command economies, helping you understand how decisions are made in different economic systems. Test your knowledge and grasp the essentials of market and planned economies.

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