p.7
Market System and Participant Roles
What drives individuals in a market mechanism?
Their own rational self-interest.
p.1
Scarcity and Trade-offs in Economics
What do households, firms, and governments face due to scarcity?
Decisions about how best to use their scarce resources.
p.6
Market System and Participant Roles
Which type of economies are more successful in raising living standards?
Countries closest to a free market.
p.7
Market System and Participant Roles
Do firms contribute to the iPad out of a desire to enrich Apple?
No, they contribute without any desire to enrich Apple or provide enjoyment for iPad purchasers.
p.5
Opportunity Cost in Production Decisions
Why is the first hour spent studying economics more valuable?
It has a lower opportunity cost compared to the last hour.
p.7
Market System and Participant Roles
What is the 'invisible hand' in economics?
A metaphor for how individual responses can collectively satisfy consumer wants.
p.6
Circular-flow Diagram in Economics
What do green arrows represent in the Circular-flow Diagram?
Firms paying money to households for factors of production.
p.2
Opportunity Cost in Production Decisions
What happens if Tesla wants to produce more Model 3s?
It must reduce the number of original models produced.
p.9
Legal Framework for a Successful Market System
What is the role of government in a free market?
Government does not restrict how firms produce and sell goods or how they employ factors of production.
p.3
Opportunity Cost in Production Decisions
What is the opportunity cost of producing 20 more Model 3s?
The opportunity cost is producing 20 fewer original models.
p.8
The Role of Entrepreneurs in Economic Growth
What contribution do entrepreneurs make to the economy?
They contribute to economic growth, often with considerable personal risk and sacrifice.
p.5
Market System and Participant Roles
How do households receive payments in the economy?
By selling factors of production to firms in factor markets.
p.2
Opportunity Cost in Production Decisions
Is the PPF a positive or normative tool?
Positive; it shows 'what is', not 'what should be'.
p.10
Legal Framework for a Successful Market System
What are property rights?
The rights individuals or firms have to the exclusive use of their property.
p.8
The Role of Entrepreneurs in Economic Growth
How do the best entrepreneurs respond to consumer demand?
They create products that consumers never even knew they wanted.
p.1
Scarcity and Trade-offs in Economics
What challenge does Tesla face when producing the Model 3?
Devoting more resources to the Model 3 takes away from producing other, more profitable models.
p.5
Market System and Participant Roles
What do households provide in the market economy?
Factors of production: labor, capital, natural resources, and entrepreneurial ability.
p.6
The Role of Entrepreneurs in Economic Growth
Who argued for free markets in 1776?
Adam Smith in his treatise 'An Inquiry into the Nature and Causes of the Wealth of Nations.'
p.10
Legal Framework for a Successful Market System
Why is protection of private property important?
It provides households and firms with the incentive to work hard.
p.8
The Role of Entrepreneurs in Economic Growth
What effect do government policies encouraging entrepreneurship have?
They are likely to increase economic growth and raise standards of living.
p.6
Circular-flow Diagram in Economics
What do blue arrows represent in the Circular-flow Diagram?
Households providing factors of production to firms.
p.7
Market System and Participant Roles
What role do flexible prices play in a market?
They allow collective actions of households and firms to signal the relative worth of goods and services.
p.1
Opportunity Cost in Production Decisions
What happens if Tesla decides to produce more Model 3s?
Resources will not be available to produce Model Ss.
p.10
Legal Framework for a Successful Market System
What is essential for a successful market system?
Protection of private property.
p.1
Elon Musk's Vision for Tesla
What was Elon Musk's vision for Tesla's electric cars?
To create an electric car for the average consumer.
p.3
Production Possibilities Frontier (PPF)
What does a combination that is unattainable with current resources represent on the PPF?
It represents a point outside the production possibilities frontier.
p.3
Production Possibilities Frontier (PPF)
What does Tesla's production possibilities frontier illustrate?
It shows the trade-off between producing original models and Model 3s.
p.5
Market System and Participant Roles
What do households do in product markets?
Buy goods and services from firms.
p.9
Legal Framework for a Successful Market System
What must governments provide for a market system to succeed?
A sound legal environment.
p.4
Economic Growth and Resource Allocation
What does technological improvement in the automobile industry affect?
It allows for previously unattainable combinations of production, while the quantity of tanks produced remains unchanged.
p.3
Opportunity Cost in Production Decisions
What is the definition of opportunity cost?
The highest-valued alternative that must be given up to engage in an activity.
p.7
Market System and Participant Roles
Does Apple manufacture iPad components?
No, Apple does not manufacture iPad components or assemble the final product.
p.2
Production Possibilities Frontier (PPF)
What do points above the PPF represent?
Unattainable production with current resources.
p.4
Economic Growth and Resource Allocation
What happens when more economic resources become available?
The economy can move from point A to point B, producing more tanks and automobiles.
p.3
Increasing Marginal Opportunity Costs
Why are opportunity costs often increasing?
Because resources are not equally productive; some are better suited for specific tasks.
p.6
Market System and Participant Roles
What is a characteristic of a free market?
Few government restrictions on production and sale of goods and services.
p.2
Production Possibilities Frontier (PPF)
What do points on the PPF represent for Tesla?
Attainable production levels.
p.8
The Role of Entrepreneurs in Economic Growth
What is the primary role of an entrepreneur?
To operate a business by bringing together the factors of production—labor, capital, and natural resources—to produce goods and services.
p.6
Circular-flow Diagram in Economics
What do red arrows represent in the Circular-flow Diagram?
Firms providing goods and services to households.
p.7
Market System and Participant Roles
Do all firms involved in making an iPad know their products will be used in it?
No, many probably don’t even know.
p.2
Production Possibilities Frontier (PPF
What does a production possibilities frontier (PPF) represent?
It shows the maximum attainable combinations of two goods that can be produced with available resources and technology.
p.4
Economic Growth and Resource Allocation
What is economic growth?
The ability of the economy to increase the production of goods and services.
p.6
Circular-flow Diagram in Economics
What does the Circular-flow Diagram illustrate?
How participants in markets are linked.
p.1
Scarcity and Trade-offs in Economics
What is scarcity in economics?
A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
p.3
Production Possibilities Frontier (PPF)
What does a combination that is inefficient indicate on the PPF?
It indicates that not all resources are being used effectively.
p.3
Increasing Marginal Opportunity Costs
What happens to opportunity costs as production increases?
Opportunity costs often increase, leading to a 'bowed-out' PPF.
p.1
Scarcity and Trade-offs in Economics
What does economics teach us regarding trade-offs?
Tools to help make good trade-offs.
