Questions and Answers
Economics is the study of how individuals and societies allocate __________ resources among many competing uses.
scarce
Due to the ____ of natural resources, we cannot have all the housing and all the forests we may want.
scarcity
Tomatoes represent a small subset of food, so tomatoes are
relatively more scarce than food in general
The effect of an extension in unemployment benefits on the unemployment rate in the country is referred to as
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The effect of a tax credit for purchasing new energy-compliant appliances on the use of electricity is studied in
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The value of the next-best, forgone alternative is known as the
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Because the world is characterized by scarcity, people must ___________ the resources at their disposal to many competing uses.
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Because resources are ______ they must be allocated between competing uses.
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When someone compares marginal benefits associated with an activity to its marginal costs, that person is making a ______________ decision.
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Economics is the study of how individuals and societies allocate:
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The more of a good or a service that is consumed in a given period of time, the lower the marginal ________ that is associated with each additional unit.
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Labor as a resource is defined as all ____ and ____ activity devoted to producing goods and services.
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Marginal Benefit is defined as
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The term "scarcity" describes the fact that people's _______ wants cannot be completely satisfied with _______ resources.
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When you decide after studying for three hours that another hour of sleep is more beneficial to you than a fourth hour of studying, you are engaging in:
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Examines the entire economy of a state, a country, or even the world, so it examines total output, the price level, and other aggregate measures of the economy.
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The additional cost associated with 1 more unit of an activity is the ____________ cost.
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____________ capital refers to the knowledge and skills that people acquire in order to increase productivity.
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Increasing marginal cost describes
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The additional benefit associated with 1 more unit of an activity is ______________ benefit.
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Decreasing marginal benefit describes:
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An economy is better off when it stops producing output at the point where:
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You are wasting resources that would be better spent elsewhere:
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An economy should continue producing a good or service so long as:
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The earliest two fundamental steps in learning the economic way of thinking are understanding:
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Every person's and every economy's standard of living relies on the effective use of:
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As the amount of an activity increases, its marginal benefit:
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The more of a good or service that is produced in a given period of time, the higher the marginal ___________ that is associated with each additional unit.
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A society's ability to produce needed goods and services is permanently reduced if:
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The producer with the _______ relative opportunity cost has a comparative advantage and should specialize in the production of that good.
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__________ is the result of low-cost producers focusing all their efforts on producing a single good or service.
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On a PPF with Good X on the horizontal axis and Good Y on the vertical axis, we can say that the slope of the PPF (in absolute value) equals the opportunity cost of producing Good X with respect to the production of Good Y. This is true because the slope:
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The quality of an ___________ model can be measured by how well it reflects reality and whether it gives us insights that can be used in the real world.
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Because of differences in opportunity costs, individuals and businesses:
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Specialization in a particular good is based on ____________ advantage on the good.
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According to the circular-flow diagram, which two groups interact in the resources market?
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________ cost is most plainly visible when spending more money on one thing means that less money can be spent on another thing.
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Households can obtain the income they need to purchase the products for consumption only by selling __________.
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If the terms of trade are the same as your ______________ cost, you will receive no gains from the trade.
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As long as there are differences in opportunity costs, there are _____________ advantages, and there will be potential for trade to make both parties better off.
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In the circular flow model, the two markets are:
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According to the circular-flow diagram, when a household receives a wage for supplying a firm with labor, the interaction occurs in the _________ market.
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Individuals and countries specialize because the opportunity cost of producing goods and services:
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Whether a good or a service will be traded depends largely on the terms of _________.
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In the circular flow model, firms can produce the output they sell to households only by buying _________ from households.
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The law of __________ costs says that because some resources are better suited to producing one good or service than another, as the production of a good or service increases, the _____ cost of each individual unit rises.
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______________ cost is most plainly visible when spending more money on one thing means that less money can be spent on another thing.
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Terms of trade refers to
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The terms of trade that are beneficial to both parties are prices that lie between both the parties' opportunity costs.
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In the circular flow model, _______ must buy resources from _______ in order to produce the output they will sell to households.
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When a firm receives money for a good or service it sold to a household, the interaction occurs in the ________ market.
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Comparative advantage is the foundation for establishing the benefits of
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For an entire economy, the PPF is going to be bowed out because:
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The _______ of the production possibilities frontier equals the trade-off of the production of one good or service in terms of the other.
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A potential risk of specialization is:
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___________ in trade causes individuals and nations to become interdependent.
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In the real world, the opportunity cost of production ____________ as production increases.
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Gains from trade can be measured by:
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A PPF that illustrates a 1-for-1 trade off between goods is drawn as:
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The harm in specializing is that:
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Specialization causes individuals and nations to rely on one another and:
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Economists use the phrase __________ ________ _________ to refer to the positive gain enjoyed by both buyers and sellers when they trade.
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The benefit, or wealth, that accrues to a buyer or seller as a result of trading one good, service, or resource for another is the
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The simple model of production assumes that the opportunity cost of production is __________.
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In a market:
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A _________ refers to a group of buyers and sellers who exchange one specific good, service, or resource, not to a specific place.
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Examples of complements are:
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An intangible product or action that consumers, firms, or governments wish to purchase is a
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A change in ________ occurs when a non-price determinant of demand changes.
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The entire demand curve shifts to the right or left:
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A _______ is a tangible product that consumers, firms, or governments wish to purchase.
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What are some non-price determinants of demand?
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Markets, such as the New York Stock Exchange and your local retail store, are __________ markets.
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The horizontal summation of individual demand curves:
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Any item, whether a gift of nature, the result of production, or the result of human effort, that is used to produce goods and services is a:
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The three main reasons why demand curves are downward sloping are:
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When we talk about the demand for sunglasses, we are referring to the:
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The income effect and substitution effect, and diminishing marginal utility explain:
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Two different ways in which we usually express info about the demand for a good, service, or resources are:
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According to the Law of _______, price and quantity demanded are inversely related.
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The demand curve focuses entirely on the:
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A good for which there is a direct relationship between the demand for the good and income is a _________ good.
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Diminishing marginal utility describes the:
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The ___________ __________ represents the relationship between the price of a good, service, or resource and the quantity that individuals and firms are willing and able to buy, all else held constant, in table form.
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The law of demand says that lower prices lead to a higher quantity demanded. As a result, the demand curve:
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Products such as generic, store-branded dried noodles are considered:
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Without individuals and households that are willing and able to buy a good, the ________ side of the market cannot exist.
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Substitute goods:
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The perceived desirability of consuming a good, service, or resource is referred to as the _______ and preference of the buyers.
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Market demand is based on the:
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For _____ goods, an increase in income decreases demand, and a decrease in income increases demand.
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Study Notes
Economics Fundamentals
- Economics studies the allocation of scarce resources among competing uses.
- Scarcity arises from limited natural resources versus unlimited human wants.
- Tomatoes, as a specific food item, are relatively more scarce than food in general.
Economic Branches
- Macroeconomics examines the economy as a whole, including total output and employment rates.
- Microeconomics focuses on individual components, such as the impact of tax credits on consumer behavior.
Key Economic Concepts
- Opportunity cost denotes the value of the next-best alternative forfeited when a choice is made.
- Allocation of resources is necessary due to their scarcity.
- Marginal decision making involves comparing marginal benefits and costs to make informed choices.
Production and Costs
- As consumption increases, marginal benefits tend to decrease.
- Each additional unit of a good produced typically incurs higher marginal costs.
- The production possibilities frontier (PPF) demonstrates trade-offs and opportunity costs.
Specialization and Comparative Advantage
- Comparative advantage occurs when a producer has a lower relative opportunity cost for a particular good.
- Specialization enhances productivity and efficiency, potentially increasing interdependence among economies.
- Gains from trade arise when terms of trade are favorable, allowing specialization according to comparative advantages.
Circular Flow Model
- The circular flow model illustrates interactions between households and firms in factor and product markets.
- Households sell resources to firms to earn income, while firms provide goods and services to households.
Demand Determinants
- Demand is influenced by non-price determinants such as consumer preferences, number of buyers, and expectations.
- The law of demand indicates that price and quantity demanded are inversely related.
- A demand curve slopes downward, encapsulating the negative relationship between price and quantity demanded.
Types of Goods
- Normal goods have a direct relationship with consumer income, while inferior goods decrease in demand as income rises.
- Substitute goods can fulfill the same need or desire, often competing with one another in the market.
Market Dynamics
- Market demand is the aggregate preference of consumers within a market.
- Changes in demand occur due to non-price factors, leading to shifts in the demand curve rather than movement along it.
Utility and Consumption
- Diminishing marginal utility reflects the decrease in additional satisfaction gained from consuming more units of a good.
- The interplay of income effect, substitution effect, and diminishing marginal utility explains consumer behavior in response to price changes.
Economic Models
- Economic models simplify complex realities to analyze relationships, such as opportunity costs illustrated through the PPF slope.
- Effective models must accurately reflect real-world scenarios for practical use.
Resource Classification
- Resources encompass all inputs used in production, categorized into labor (physical and mental), land, and capital.
- Opportunity cost is prominently visible in budget constraints and trade-offs.
Key Characteristics of Markets
- Markets consist of buyers and sellers exchanging goods, services, or resources, with both formal and informal examples existing.
- Understanding demand schedules and curves aids in predicting consumer behavior under various conditions.
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Test your understanding of fundamental economics concepts related to resource allocation and scarcity with these flashcards. Each card presents key terms and definitions essential for grasping the principles of economics.