Questions and Answers
What does the phenomenon of scarcity stem from?
resources are limited
What does the adage, 'there is no such thing as a free lunch', illustrate?
people face tradeoffs
What basic principle does Sophia's situation illustrate when she must choose between the swimming pool and a movie?
people face tradeoffs
What is a tradeoff that occurs when society requires that firms reduce pollution?
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When the government implements programs such as progressive income tax rates, which of the following is likely to occur?
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What should be included when computing the opportunity cost of attending a concert?
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What does a rational decision maker take an action only if?
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What principle does the situation of Iowans purchasing cigarettes from surrounding states illustrate?
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Why can trade be beneficial as argued by Emma?
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In an economy guided by prices and individual self-interest, what is the potential outcome?
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For which problems can well-designed public policy enhance economic efficiency?
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What do laws that restrict smoking in public places aim to reduce?
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Based on production data, where is the standard of living likely to be higher?
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Which concept is likely to be permanently changed by a permanent increase in the growth rate of the money supply?
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In the short run, which rate of growth in the money supply is likely to lead to the highest level of unemployment?
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Which arrow shows the flow of income payments?
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To which arrows does Jane's shoe purchase directly contribute?
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Which arrow does Erin's paycheck directly contribute to?
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Efficiency is illustrated by?
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What is not a concept included in the production possibilities frontier (PPF)?
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Where is production possible and efficient?
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What could cause the movement from point S to point R in production?
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In order to gain 2 radios, how many televisions must society sacrifice moving from point S to point T?
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What could cause a shift of the economy's production possibilities frontier from Panel (a) to Panel (b)?
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Which event would explain the shift of the production possibilities frontier from a to b?
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Which of the following would most likely cause the production possibilities frontier to shift outward from a to b?
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What is an example of a positive statement?
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When a production possibilities frontier is bowed outward, what happens to the opportunity cost of producing an additional unit of a good?
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If the price of a substitute to good X increases, what is likely to happen to the demand for good X?
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What do externalities refer to?
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What is inflation?
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What does efficiency mean in economics?
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What does the abbreviation 'PPF' stand for?
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What does the production possibilities frontier describe?
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What is equality in economic terms?
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What is a positive statement?
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What do tastes refer to in economic terms?
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What does scarcity mean?
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What encompasses the study of economics?
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What does it mean that people face trade-offs?
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What is opportunity cost?
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What does it mean to systematically and purposefully make decisions?
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What are marginal changes?
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What is the condition for marginal benefit?
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What is an incentive?
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What is a market?
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What does market power refer to?
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What does a country's standard of living depend on?
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What is a circulation flow diagram?
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To produce an efficient level of output, you must?
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What does Quantity Demanded (Qd) represent?
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What is indicated by low demand?
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What does a demand curve graphically represent?
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What is a market demand curve?
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What does market demand refer to?
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Study Notes
Scarcity and Trade-offs
- Scarcity arises because resources are limited, necessitating choices.
- The phrase "there is no such thing as a free lunch" emphasizes that every choice involves trade-offs.
- Personal examples, like choosing between swimming and a movie, illustrate how individuals face trade-offs when making decisions.
Economic Efficiency and Policy
- Reducing pollution via regulatory measures creates trade-offs, affecting incomes of firms and employees.
- Government programs aimed at equality, like progressive income taxes, may enhance equality but often reduce efficiency.
- Concepts of economic efficiency can be improved through well-designed public policies, addressing issues such as externalities and market power.
Decision-Making and Incentives
- Rational decision-makers act only when the marginal benefit exceeds the marginal cost.
- Price increases, such as a $1 rise in cigarette costs in Iowa, lead consumers to look for alternatives, demonstrating that people respond to incentives.
Trade and Specialization
- Trade with other countries promotes specialization, resulting in greater outputs and overall benefits in production levels.
Production Possibilities Frontier (PPF)
- The PPF illustrates the maximum possible output for an economy; efficiency is achieved only at certain points.
- Shifts in the PPF can result from advancements in technology, changing resource availability, or other economic factors.
- A bowed outward PPF indicates rising opportunity costs as more of a good is produced.
Economic Concepts
- The opportunity cost includes all costs associated with pursuing an alternative.
- Inflation denotes a general increase in prices and decreased purchasing power of money.
- Externalities refer to costs or benefits that affect third parties, often leading to market failures.
Demand and Market Dynamics
- Quantity demanded represents how much of a good buyers are ready to purchase at given prices.
- Low demand indicates that only a small number of people are interested in a product, typically leading to price reductions.
- Demand curves showcase the relationship between product price and quantity demanded across the market.
Standard of Living and Economic Growth
- A country's standard of living is linked to its capacity to produce goods and services, influencing overall well-being.
- Systematic and purposeful decision-making involves maximizing objectives within resource constraints.
Economic Growth References
- Permanent increases in the growth rate of the money supply generally lead to sustained inflation while specific monetary growth rates might correlate with higher unemployment rates short-term.
Market Structure and Power
- Market power leads to failures in efficient allocation of resources and can impact overall market equilibrium.
Key Definitions
- Efficiency: Utilizing resources to maximize production output.
- Positive Statement: Observable and verifiable statements capable of being true or false.
- Incentives: Factors motivating individuals to take specific actions.
- Market Demand: Aggregated demand from all individual consumers in a market.
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Description
Explore the fundamental concepts of scarcity and trade-offs in this quiz. Understand how individuals and governments make choices based on limited resources and their impacts on efficiency and policy. Test your knowledge on decision-making and incentives in economic scenarios.