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Questions and Answers
The inputs into the process of production are referred to as ______.
The inputs into the process of production are referred to as ______.
factors of production
In economics, the term ______ refers to the limited availability of resources.
In economics, the term ______ refers to the limited availability of resources.
scarcity
The process that transforms scarce resources into useful goods and services is called ______.
The process that transforms scarce resources into useful goods and services is called ______.
production
Usable products resulting from production processes are referred to as ______.
Usable products resulting from production processes are referred to as ______.
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Resources provided by nature or previous generations are known as ______.
Resources provided by nature or previous generations are known as ______.
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In a simple economy, basic decisions similar to those in complex economies must also be made regarding ______.
In a simple economy, basic decisions similar to those in complex economies must also be made regarding ______.
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Another term for resources in economics is ______.
Another term for resources in economics is ______.
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The concept of ______ involves evaluating what to give up when making economic choices.
The concept of ______ involves evaluating what to give up when making economic choices.
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In a command economy, a central ______ sets output targets.
In a command economy, a central ______ sets output targets.
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The three basic economic questions are about what gets produced, how it is produced, and ______.
The three basic economic questions are about what gets produced, how it is produced, and ______.
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Laissez-faire economy literally means 'allow ______ to do'.
Laissez-faire economy literally means 'allow ______ to do'.
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In a laissez-faire economy, firms pursue their own self-______.
In a laissez-faire economy, firms pursue their own self-______.
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The institution where buyers and sellers interact is called a ______.
The institution where buyers and sellers interact is called a ______.
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Scarcity leads to the necessity of making ______.
Scarcity leads to the necessity of making ______.
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All economic systems must face the problem of ______.
All economic systems must face the problem of ______.
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In a command economy, prices are set by the ______.
In a command economy, prices are set by the ______.
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The scarcity of resources leads to an opportunity cost of forgone present ______.
The scarcity of resources leads to an opportunity cost of forgone present ______.
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The production possibility frontier (PPF) is a graph that shows the combinations of goods and services produced if all resources are used ______.
The production possibility frontier (PPF) is a graph that shows the combinations of goods and services produced if all resources are used ______.
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Economic downturns or recessions can lead to ______ of labor and capital.
Economic downturns or recessions can lead to ______ of labor and capital.
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When industrial plants run at less than total ______, it indicates inefficiency in the economy.
When industrial plants run at less than total ______, it indicates inefficiency in the economy.
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Waste and mismanagement can result from a firm operating below its ______.
Waste and mismanagement can result from a firm operating below its ______.
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The opportunity cost is related to the ______ that must be given up when making an investment.
The opportunity cost is related to the ______ that must be given up when making an investment.
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An economy is producing efficiently when it is on the ______ possibility frontier.
An economy is producing efficiently when it is on the ______ possibility frontier.
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A key characteristic of the production possibility frontier is its depiction of ______ in the use of resources.
A key characteristic of the production possibility frontier is its depiction of ______ in the use of resources.
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New businesses arise each day and some go out of business in response to ______ opportunities and losses.
New businesses arise each day and some go out of business in response to ______ opportunities and losses.
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In a free market system, the basic economic questions are answered without the help of a central ______ plan or directives.
In a free market system, the basic economic questions are answered without the help of a central ______ plan or directives.
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Individuals pursuing their own self-interest will go into business and produce the products and services that people ______.
Individuals pursuing their own self-interest will go into business and produce the products and services that people ______.
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The basic coordinating mechanism in a free market is ______.
The basic coordinating mechanism in a free market is ______.
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The differences between command economies and ______ economies in their pure forms are enormous.
The differences between command economies and ______ economies in their pure forms are enormous.
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People will decide whether to acquire ______; whether to work; and whether to buy, sell, invest, or save.
People will decide whether to acquire ______; whether to work; and whether to buy, sell, invest, or save.
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In a free market, the system is left to operate on its own, with no outside ______.
In a free market, the system is left to operate on its own, with no outside ______.
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Some businesses fail and close down because they do not manage their ______ effectively.
Some businesses fail and close down because they do not manage their ______ effectively.
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All real systems are in some sense 'mixed' rather than pure forms, indicating that _____ do not exist in the world.
All real systems are in some sense 'mixed' rather than pure forms, indicating that _____ do not exist in the world.
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One issue with market systems is that they do not always produce what people want at the _____ cost.
One issue with market systems is that they do not always produce what people want at the _____ cost.
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Rewards, or income, may be _____ distributed among different groups within the economy.
Rewards, or income, may be _____ distributed among different groups within the economy.
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Periods of _____ and inflation tend to recur with some regularity in market economies.
Periods of _____ and inflation tend to recur with some regularity in market economies.
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The concept of _____ advantage involves comparing the efficiencies of different producers.
The concept of _____ advantage involves comparing the efficiencies of different producers.
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_____ economy refers to a system where the government makes all economic decisions.
_____ economy refers to a system where the government makes all economic decisions.
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The _____ possibility frontier (PPF) illustrates the trade-offs between two goods in an economy.
The _____ possibility frontier (PPF) illustrates the trade-offs between two goods in an economy.
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_____ goods are products that are consumed by individuals to satisfy their wants.
_____ goods are products that are consumed by individuals to satisfy their wants.
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Study Notes
Economic Problem: Scarcity and Choice
- Scarcity necessitates choices about resource allocation; every choice involves opportunity costs.
- Capital refers to goods produced for further production; it includes machinery, tools, and buildings.
- Factors of production encompass all inputs used to create goods and services, including land, labor, and capital.
- Production transforms resources into usable goods and services, responding to human wants.
Production Possibility Frontier (PPF)
- The PPF illustrates the maximum combinations of goods and services that can be produced with available resources and technology.
- Any point inside the PPF indicates inefficiency, such as unemployment of labor and capital.
- A downward slope in the PPF reflects the opportunity cost of reallocating resources from one good to another.
Unemployment and Inefficiency
- Economic downturns result in underused industrial capacity and labor, contributing to inefficiency.
- Mismanagement or waste can further exacerbate inefficiencies by not fully utilizing potential production.
Addressing Economic Questions
- Societies face three fundamental questions: What gets produced? How is it produced? Who receives it?
- Managing scarce resources requires systematic approaches to determine production and distribution of goods.
Economic Systems
- Command Economy: Central government sets output targets, incomes, and prices, directing resource allocation.
- Laissez-Faire Economy: Individuals and firms act in their self-interest without central regulation, driven by market forces.
Price Theory in Free Market
- Free markets address economic questions autonomously, with prices serving as the key mechanism for coordination.
- Profit opportunities and losses drive innovation and business dynamics, responding to consumer demand.
Mixed Economies
- Pure forms of command and laissez-faire economies are theoretical; real-world economies usually combine elements of both.
- Market systems can lead to inefficiencies and unfair income distribution, leading to cycles of unemployment and inflation.
Key Concepts
- Absolute and comparative advantage: Conditions for countries or entities to produce goods at lower opportunity costs.
- Consumer sovereignty ensures production reflects consumer preferences; market mechanisms facilitate this.
- Inputs (resources) and outputs differentiate between raw materials and finished goods within the production process.
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Description
This quiz covers Chapter 2 of Principles of Economics, focusing on the economic problem of scarcity and choice. Explore how resources are produced and allocated in economic systems, providing insight into fundamental economic principles.
