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35 Cards in this Set
- Front
- Back
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Adam Smith thought the division of labor was a great advance in the structure of economic systems
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because society could produce more output using the same amount of resources.
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The theory of comparative advantages suggests that specialization and trade are good because both parties may benefit, as long as relative production costs are different prior to specialization.
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TRUE
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Someone has comparative advantage if their opportunity costs of production are lower.
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TRUE
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Many economists argue that everyone benefits from specialization and trade. This will be true as long as
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no economic actor can exercise economic, political or military power over the other economic actors.
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Neo-colonialism is a process where
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powerful countries control poorer countries using economic mechanisms.
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All of the developed industrialized countries used tariffs to protect their 'infant industries' until those industries were able to compete internationally. Under GATT-2, which created the WTO, countries that are trying to develop today are no longer allowed to have these types of tariffs.
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TRUE
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All countries subsidize their agricultural sector because
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no country is willing to trust the market as the only mechanism to provide basic necessities.
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The North American Free Trade Agreement (NAFTA) and GATT-2 are less about 'free trade' and more about the redefinition of property rights.
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TRUE
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The theory of diminishing marginal utility suggests that as one consumes more of a particular good, the satisfaction received from the next unit of the good is less than that received from the previous unit of the good.
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TRUE
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Demand curves generally slope downward because
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as prices rise, we attempt to find substitutes for that good.
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The difference between demand and quantity demanded is
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demand is a menu of possible outcomes, quantity demanded is single amount at a given price.
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If a good X and good Y are complementary goods, if the price of good Y increases
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the demand for good X decreases.
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A good is a normal good if
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as income rises, mroe of the good is demanded.
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If Ron expects the price of shirt to fall in the future, it will result in
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a decrease in his demand for shirts.
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If the price of a good falls
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quantity demanded will increase and quantity supplied will decrease.
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A demand curve would NOT shift following a change in
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the market price of the good.
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Equilibrium is defined as the level of output at which
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quantity supplied equals quantity demanded.
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If the current market price is above the equilibrium price then
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a surplus will exist.
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In the simple theory of supply and demand, the only response to a shortage in the market is
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prices will rise.
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A price floor is a government policy that
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keeps prices from falling to the equilibrium price and creates a surplus.
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The US government policy of providing a price floor for agricultural products
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makes food more expensive and creates a problem of what to do with excess output.
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The curve in this diagram represents
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demand for a commodity with few substitutes.
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GDP (or originally GNP) was developed to measure the health of a market economy. It was not meant to measure economic well-being or standard of living.
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TRUE
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The value of household production is not included in GDP because
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it is not sold through the market.
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Which of the following would NOT be counted as part of GDP?
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a. the value of a house built this year
b. the income of a teacher hire by the local government c. a payment to a consultant for financial advice d. a chile support payment from a husband to his ex-wife The answer is D. |
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In Canada, if the value of unpaid household work was added to their GDP, using the cost of purchasing these goods and services in the market of their value, their measured GDP would
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increase by about 48 percent.
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Capital gains are not included in GDP because
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they make no productive contribution to the output of society.
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Value added is
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the difference between what a producer pays for their inputs and what they get for their output.
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At the end of the year, the value of the change in business inventories is
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added to GDP.
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If real GDP for a given year is $3000 billion and nominal GDP is $2600 billion,
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the GDP price index for this year is 0.87.
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Real GDP is better than nominal GDP in making comparisons of GDP over time because
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nominal GDP can increase simply because of price increases over time.
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The owners of a proprietorship face full financial liability for anything that the business does.
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TRUE
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The owners of proprietorships are
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independent commodity producers.
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Which of the following is true about the limited liability corporation?
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a. The corporation has limited liabilities for what it does.
b. The corporation has full liability for its actions, but the liability of the owners is limited. c. The corporation and the owners of the firm have limited liabilities for what the firms does. |
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When a firm does not have to worry about paying all of the costs that arise from their business decisions they are likely to behave in a socially irresponsible manner. This situation is called
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a moral hazard.
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