Exam 1: The Central Idea

Suppose you have two hotdog sausages and your friend has two hotdog buns. Explain how you can both gain from trade. Is this gain from trade through better allocation or greater production?

Is it possible for an economy to make tradeoffs in the present in order to attain what is currently unattainable? Explain.

A point outside the production possibilities curve

Does the production possibilities curve represent the economy in which some people win only if others lose? Explain.

Without property rights,

The three essential questions that every economy must solve are

Gains from trade occur when there are differences in opportunity cost.

In a pure market economy, the what, how, and for whom problems are determined by

Choices are made whenever

Property rights are not necessary for a market economy to function.

A market is

Exhibit 1-9 -Refer to Exhibit 1-9. Suppose the amount of energy available to the economy declines. Which of the following is the most likely to happen?

The government can improve market conditions in case of a market failure.

Economic interactions occur only in the presence of government.

Exhibit 1-2 -____ must exist in order for gains from trade to be realized.

The table below depicts the choices George and Sarah face when deciding whether to cook, wait on tables, or both.

The concept of scarcity refers to

Suppose increased production of CD players in Asia causes the price of CD players to decline all over the world. Explain how this change in price signals information to U.S. producers, provides incentives to U.S. producers, and affects the distribution of income.

From an economic perspective, people make decisions because of

What is the relationship among economic interaction, specialization, comparative advantage, and gains from trade?