Key Q1Sp13
1. The additional cost resulting from a small increase in some activity is called the
marginal cost.
2. Does voluntary exchange create wealth (value)?
Yes, trade generally permits the trading partners to gain more of what they value; this is why
they agree to the terms of the exchange.
3. In the goods market of the circular flow model,
consumers buy finished products from firms.
4. While resources and products flow in one direction of the circular flow model, what flows the other
direction?
money
5. A society is inefficient when
all of the above.
6. In a market system, what provides individuals the information needed to make decisions?
prices
7. In a market-based economy, the government
enforces property rights.
8. When deciding whether or not to undertake an activity, economists compare:
the additional cost of the activity against the additional benefits received.
9. Economics is the study of
how society uses limited resources.
10. To think at the margin means to consider
how a small change in one variable affects another variable.
11. Which of the following is a microeconomic question?
Should the government prevent an airline from flying to certain international destinations?
12. The principle that the cost of something is equal to what is sacrificed to get it is known as the
principle of opportunity cost.
13. A production possibilities frontier is more likely to be a downward-sloping curve that is bowed
outward than a downward-sloping straight line because most resources are
better suited for the production of some goods than others.
14. According to the law of increasing opportunity costs
the opportunity cost of producing a good increases as more of the good is produced.
15. The ____________ the opportunity cost of doing something, the ____________ likely it will be done
higher, less
16. Antonio quit his job as a bartender where he made $38,000 per year to start his own tattoo parlor.
His business expenses are $8,000 per year on rent, $9,000 per year on supplies, and $6,000 per year on
part time help. As for his personal expenses, his apartment costs him $9,600 per year and his personal
bills are an extra $3,400 per year. What is Antonio's opportunity cost of running the business?
$61,000
17. A group of people has formed a swimming pool and yard maintenance business. The number of
pools or yards that they can maintain in any given day is depicted above. The opportunity cost of
maintaining the fourth pool in a day is
4 yards.
18. The 3 key economic questions include all of the following EXCEPT
"where should these products be produced?".
19. An economy in which government bureaucracy decides how much of a good to produce, how to
produce the good, and who gets the good is known as a
command economy.