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The payment one pays for acquiring capital is called _____________.
Interest. Similarly, the payment for land is called rent
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Analysis that does not impose the value judgments of one individual on the decision of others is called _______________ analysis
- Positive.
- Positive analysis is the use of theories and models to predict the impact of a choice. For example: What will be the impact of an import quota on foreign cars? What will be the impact of an increase in the gasoline excise tax?
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The study of the economy as a whole is called ________________. As opposed to microeconomics, it deals with the larger picture.
- Macroeconomics.
- For instance, microeconomics may look at an individual firm, whereas macro-economics looks at analysis of aggregate issues like Economic growth, Inflation, and Unemployment.
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A theory, or ______________, is a simplification that is used to explain an event.
- Model.
- Generally speaking, economics is a set of practical models applied to the study of individual and group choice.
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______________ are called factors of production or inputs.
- Resources.
- Goods used to produce other goods, i.e., land, labor, capital, entrepreneurial ability.
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"There should be a higher tax on cigarettes, alcohol and other 'vice' items to discourage people from buying them." is a _________________ statement.
- Normative.
- Normative analysis is analysis of "what ought to be?" For example: Consider the equity and efficiency trade-off of an increase in the gasoline excise tax versus import restriction on foreign oil.
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_______________ includes the study of how an individual firm decides the price of its product.
- Microeconomics.
- The study of the economic behavior of individual decision-making units such as consumers and business firms.
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_______________ means there is not enough of an item to satisfy everyone who wants it. Note that this technical economic definition of differs greatly from the notion of scarcity as "unusual rarity" that predominates in most ordinary language.
- Scarcity.
- In economics - the shortage that exists when less of something is available than is wanted at a zero price. Virtually all resources are scarce, meaning that there are not enough of them to satisfy all the desires of all people.
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Rational _______-_________ explains why people give money to charitable organizations.
Self-interest. Rational self-interest is the term economists use to describe how people make choices.
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Recognize the problem. Develop a model of the problem. Test the hypothesis. These are three of the five steps in the ____________ __________.
- Scientific method.
- A manner of analyzing issues that involves five steps: recognition of the problem, assumptions, model building, predictions, tests of model. The first and most important step in the scientific method is to identify what the problem or question is.
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If an individual decides to save more, he or she can save more. Therefore, if society as a whole decides to save more, it will be able to save more. This reasoning is faulty and as such is an example of the fallacy of _____________.
- Composition.
- It is the mistaken assumption that what applies in the case of one applies to the case of many.
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Bernard has noticed that every time he washes his car in the morning, it rains that afternoon. He now believes he can cause it to rain by washing his car, so he has decided to sell his services to farmers in drought-stricken areas. This reasoning is mistaken and as such is an example of the interpretation of association as _____________.
- Causation.
- The mistaken assumption that because two events seem to occur together, one causes the other.
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Out of the following – Land, Automobiles, Capital and Labor--_____________ is not a category of resources.
- Automobiles.
- Resources are goods used to produce other goods, i.e., land, labor, capital, entrepreneurial ability. Automobiles are a product.
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When an effective price ceiling is imposed on a product, the price is kept below the equilibrium price, which results in a ___________.
- Shortage.
- When a price ceiling is imposed on a product, that means that there is a limit to how much a firm can charge for the product. This limit is normally lower than the equilibrium price which would have been naturally set by the laws of supply and demand. When this occurs, the demand is greater than the supply, and a shortage results
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In pure capitalism, the scarcest resources tend to be employed very conservatively because they tend to have high ___________.
- Prices.
- And surplus goods are vice – versa.
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The payments to the owners of land, labor, capital, and entrepreneurship are, respectively - rent, wages, interest, and ______________.
- Profits.
- The term "profit" is used somewhat more narrowly by economists than the way it is used by the Internal Revenue Service or even by most businessmen and accountants. Adam Smith divided income into three types: profits, wages, and rents. The essential feature of profit is risk: capital is ventured in the hope of a return, and there may be a very great return, or little, or none.
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_____________ ________ are foregone opportunities or foregone benefits.
- Opportunity costs.
- More specifically, the highest-valued alternative that must be forgone when a choice is made. For example, the opportunity cost of spending $7 on a movie ticket would be the next best use to which you could have put the money, perhaps purchasing a paperback on economics. Another example--the opportunity cost of spending more money on customer support might be the benefit you could have gotten from spending that on newer office computers.
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The amount of one good or service that must be given up to obtain one additional units of another good or service is called the ___________ opportunity cost.
- Marginal.
- For instance, if for every extra car you produce, you must produce three less motorcycles, then the marginal opportunity cost of producing one extra car is three motorcycles. The key thing to remember is, resources (number of workers, raw materials, etc) are scarce--there is a limited number of products you can make. Making more of one product often means making less of another.
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The opportunity cost of a college education is the other goods or opportunities you must sacrifice plus any ___________ costs.
- Explicit.
- Opportunity cost consists of implicit costs, which don't involve a money payment or a market transaction, and explicit costs. How much does it cost to go to college for a year? We could add up the direct costs like tuition, books, school supplies, etc. These are examples of explicit costs, i.e., costs that require a money payment.
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A production possibilities curve shows the _____________ of two products that an economy is capable of producing with its finite resource stock.
- Combinations.
- For example, it may demonstrate the relationship between how much cheese vs how much beef a firm produces. The more beef a company produces, the less cheese it's capable of producing. A production possibilities curve shows this relationship between amount of beef produced and amount of cheese produced.
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Suppose an economy is operating at a point on its production possibilities curve showing clothing and food. If the economy desires to produce additional clothing it must ________ its output of food.
- Reduce.
- The production possibilities curve shows the relationship between one product and another
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If a society is operating inside its production possibilities curve for guns and butter, then some economic resources are ________________.
- Unemployed.
- If you are producing under, instead of on, the production possibilities curve (PPC), then some resources are unemployed or unused, and this is considered inefficient.
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Economic growth would be depicted by an _____________ shift of the production possibilities curve.
- Outward.
- Economic growth is an increase in real national income, usually measured as the percentage change in gross national product or gross domestic product per year. As the economy grows, naturally the PPC Curve should shift outward to represent the increased capacity for production.
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A point that lies __________________ the production possibilities curve indicates that resources are not being fully or efficiently used.
- Inside.
- A point on the curve depicts a point where the resources are efficiently used. Anything inside, or under, the PPC curve indicates that there are extra resources which are not being put to use
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Allocative efficiency occurs when price equals marginal cost (P = MC). This only occurs in __________________ firms.
- Perfectly Competitive.
- Only in Perfectly Competitive firms does Price equal Marginal Cost. In monopolistically competitive firms, oligopolies, and monopolies, price is greater than Marginal Cost. Note that Perfect Competition is also referred to as Pure Competition.
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It is possible to produce more of one good without giving up units of another good if society is producing ________________ its production possibilities curve.
- Inside.
- This means that more resources are available than are being used. It is not possible to produce outside of the PPC curve, because the PPC curve indicates maximum use of resources.
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A nation has a comparative advantage in those activities in which it has the ___________ opportunity costs.
- Lowest.
- For instance, Taiwan has a comparative advantage in electronic items.
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A bowed-out production possibilities curve illustrates ______________ marginal opportunity costs.
- Increasing.
- For most PPC curves, the marginal opportunity costs do not stay constant. For example, the marginal opportunity cost of going from 5 units of food to 6 units might be 5 units of clothing. On the other hand, the marginal OC of going from 9 units of food to 10 units might be 8 units of clothing. If the marginal opportunity cost stayed constant, the PPC curve would be a straight line, not a curve
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When either the supply or the demand curve is perfectly ____________, that means it will be a straight vertical line.
- Inelastic.
- If supply is perfectly inelastic, that means no matter the price, the quantity supplied stays the same. Likewise, if demand is perfectly inelastic, no matter the price, the quantity demanded stays the same.
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People specialize according to their _______________ advantage.
- Comparative.
- A comparative advantage is the ability to produce a good or service at a lower opportunity cost than someone else. For example, China has a comparative advantage when it comes to making electronics.
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The government tries to maintain a ______________ marketplace through antitrust laws.
- Competitive.
- The goal of antitrust laws, such as the Sherman Act, are to prevent firms from engaging in anticompetitive behavior.
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At point A on a production possibilities curve, there are 50 tons of rice and 60 tons of barley. At point B on the same curve, there are 40 tons of rice and 80 tons of barley. If the farmer is currently at point A, the opportunity cost of moving to point B is __________.
- 10 tons of rice.
- The opportunity cost is what you are getting less of as a result of increasing production of something else. Going from point A to B meant producing an extra 20 tons of barley, but it also meant an opportunity cost of 10 tons of rice.
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The production-possibility curve shifts outward when there is a _______________ advance.
- Technological.
- A technological advance is a scenario that often results in the PPC curve shifting outward. The advance creates more possibilities in the production of the product. It also leads to an increase in supply for the good. In other words, technological advances increase the capacity for production.
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