Exam 3: The Fundamental Economic Problem: Scarcity and Choice

Specialization in production

You have invested $1,000 in a stock whose price is increasing at 10 percent a year. Your stock broker, who is never wrong, recommends a stock rising at 20 percent a year. Assuming the broker earns 4 percent of the stock's value on any purchase or sale of the stock, should you take his or her recommendation?

The most important way in which inefficiency occurs is

The opportunity cost of a college education does not include any income that is foregone while enrolled in school, since this is not measured using monetary costs.

In his concept of "the invisible hand," Adam Smith explains that

Free markets promote all of society's goals.

A market system works very well in solving some basic problems of the economy but it fails in some cases. Provide examples.

Figure 3-7 What is the opportunity cost of moving from point B to point A in Figure 3-7?

If Japan and the United States engage in trade, and Japan gains as a result of the trade, does that mean the United States has lost in some manner?

The money cost of a particular good will approximate its opportunity cost if

The opportunity cost of any decision is the forgone value of the next best alternative that is not chosen.

As a general rule, an increase in the capital available to a society

High opportunity costs go hand in hand with high money costs in a properly functioning economy.

Scarcity is a concept that does not apply to

Millionaires do not face the problem of scarcity.

An optimal choice can be characterized as a decision made by someone who is satisficing.

In Figure 3-2, a move from a point like B to a point such as D

In a market economy, the decision regarding allocation of resources is made by

In a market system, ____ distributes goods among consumers in accord with their tastes and preferences, using voluntary exchange to determine who gets what.

Voluntary exchange