Carefully define the following terms and explain their importance to the study of economics
a. resources
b. rational decision
c. scarcity
d. opportunity cost
a. Resources are the instruments provided by nature or by people that are used to create goods and services that humans want. They are scarce, and include raw materials, labor, and capital.
b. A rational decision is one that best serves the objective of the decision maker. The use of the word rational does not indicate approval or disapproval of the objective.
c. Scarcity is the general fact that humanity has less of resources and things than we would like. Scarcity leads to the need for rational decisions regarding economic resources.
d. The opportunity cost of any decision is the forgone value of the next best alternative that is not chosen. Scarcity imposes the need to compute opportunity cost.
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In reality, because few markets are perfectly competitive, some loss of economic efficiency occurs in the market for nearly every good or service
Indicate whether the statement is true or false
A small open economy is an economy
A) in which both imports and exports are less than 5% of GDP. B) whose firms and consumers are individually, but not collectively price takers. C) whose firms and consumers are collectively, but not individually price takers. D) whose firms and consumers are individually and collectively price takers.
If the Fed wishes to increase the money supply, it can:
A. sell a bond to bank, and take the money it receives in exchange out of circulation in the economy. B. buy bonds from a bank, giving the bank cash in return, which it can then lend out. C. sell a bond to a bank, and take the money it receives and lend it out to someone else. D. buy a bond from a bank, requiring the bank to hold the money it receives as excess reserves.
One explanation that economists give for the persistence of poverty in LDCs falls under the category of nonscientific perceptions. An example of this is people in LDCs who
a. are unwilling to devote their energies to intellectual pursuits b. don't share the values associated with the means to acquire or the acquisition of the materialist world commonly identified with Westerners c. are not rational, utility-maximizing, economic agents d. value their children e. because of climate, require a lower calorie diet to survive