What drives individuals in a market mechanism?
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Their own rational self-interest.
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What drives individuals in a market mechanism?
Their own rational self-interest.
What do households, firms, and governments face due to scarcity?
Decisions about how best to use their scarce resources.
Which type of economies are more successful in raising living standards?
Countries closest to a free market.
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.
Why is the first hour spent studying economics more valuable?
It has a lower opportunity cost compared to the last hour.
What is the 'invisible hand' in economics?
A metaphor for how individual responses can collectively satisfy consumer wants.
What do green arrows represent in the Circular-flow Diagram?
Firms paying money to households for factors of production.
What happens if Tesla wants to produce more Model 3s?
It must reduce the number of original models produced.
What is the quantity of Model 3s produced at point C on Tesla's PPF?
40 Model 3s.
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.
What is the opportunity cost of producing 20 more Model 3s?
The opportunity cost is producing 20 fewer original models.
What contribution do entrepreneurs make to the economy?
They contribute to economic growth, often with considerable personal risk and sacrifice.
How do households receive payments in the economy?
By selling factors of production to firms in factor markets.
Is the PPF a positive or normative tool?
Positive; it shows 'what is', not 'what should be'.
What are property rights?
The rights individuals or firms have to the exclusive use of their property.
How do the best entrepreneurs respond to consumer demand?
They create products that consumers never even knew they wanted.
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.
What do households provide in the market economy?
Factors of production: labor, capital, natural resources, and entrepreneurial ability.
How many firms are involved in making an iPad?
Hundreds of firms.
Who argued for free markets in 1776?
Adam Smith in his treatise 'An Inquiry into the Nature and Causes of the Wealth of Nations.'
At point A on Tesla's PPF, how many original models are produced?
80 original models.
Why is protection of private property important?
It provides households and firms with the incentive to work hard.
What effect do government policies encouraging entrepreneurship have?
They are likely to increase economic growth and raise standards of living.
What do blue arrows represent in the Circular-flow Diagram?
Households providing factors of production to firms.
What do firms supply in the product markets?
Goods and services.
What does a shift in the production possibilities frontier represent?
Economic growth.
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.
What happens if Tesla decides to produce more Model 3s?
Resources will not be available to produce Model Ss.
What motivates the firms contributing to the iPad's production?
Their own self-interest.
What is essential for a successful market system?
Protection of private property.
What was Elon Musk's vision for Tesla's electric cars?
To create an electric car for the average consumer.
What does a combination that is unattainable with current resources represent on the PPF?
It represents a point outside the production possibilities frontier.
What does Tesla's production possibilities frontier illustrate?
It shows the trade-off between producing original models and Model 3s.
What are the two key groups that participate in the market economy?
Households and firms.
Who designs the iPad?
Apple engineers.
What do households do in product markets?
Buy goods and services from firms.
What do points below the PPF indicate?
Inefficient production.
What must governments provide for a market system to succeed?
A sound legal environment.
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.
What is the definition of opportunity cost?
The highest-valued alternative that must be given up to engage in an activity.
Does Apple manufacture iPad components?
No, Apple does not manufacture iPad components or assemble the final product.
What do points above the PPF represent?
Unattainable production with current resources.
What happens when more economic resources become available?
The economy can move from point A to point B, producing more tanks and automobiles.
Why are opportunity costs often increasing?
Because resources are not equally productive; some are better suited for specific tasks.
What is a characteristic of a free market?
Few government restrictions on production and sale of goods and services.
What do points on the PPF represent for Tesla?
Attainable production levels.
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.
What does the production possibilities curve (PPF) for exam grades look like?
A bowed-outward curve.
What do red arrows represent in the Circular-flow Diagram?
Firms providing goods and services to households.
Do all firms involved in making an iPad know their products will be used in it?
No, many probably don’t even know.
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.
What is economic growth?
The ability of the economy to increase the production of goods and services.
What does the Circular-flow Diagram illustrate?
How participants in markets are linked.
What is scarcity in economics?
A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
What does a combination that is inefficient indicate on the PPF?
It indicates that not all resources are being used effectively.
When were Tesla's electric cars first offered for sale?
In 2008.
What happens to opportunity costs as production increases?
Opportunity costs often increase, leading to a 'bowed-out' PPF.
What does economics teach us regarding trade-offs?
Tools to help make good trade-offs.
At point D on Tesla's PPF, how many Model 3s are produced?
60 Model 3s.
