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Short Answer.

Section 1:
1. What is the fundamental economic problem?

2. What are the three basic economic question all societies must face?

Section 2:

3. What is the relationship btwn scarcity, value, utility and wealth?

4. What relationships are demonstrated through the circular flow of economic activity?

Section 3:

5. Give an example of how trade-offs and opportunity cost are related.

6. What are some decision-making strategies?

True/False
Indicate whether the statement is true or false. If false, correct the statement.

____7.When manufactured goods are used to produce other goods and services, they are called capital goods.

____8.A nondurable good lasts for less than five years when used on a regular basis.

____9.Economic growth occurs when a nation's total output of goods and services increases over time.

____10.In economics, land refers to the natural resources needed for production, such as forests, minerals, and climate.

____11.The four factors of production are land, capital, labor, and financing.

____12.Economics is a social science because it deals with how people behave while trying to satisfy their needs and wants through use of relatively scarce resources.

____13.Division of labor increases efficiency because it allows workers to master many aspects of their jobs.

____14.Economic interdependence limits a nation's growth and usually reduces the efficiency of production.

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____15.The dollar value of all final goods and services and the most comprehensive measure of a country's total production output is |a. |its standard of living. |c. |a cost-benefit analysis. | |b. |financial capital. |d. |Gross Domestic Product (GDP). |

____16.An economy at its production possibilities frontier is operating |a. |with slow economic growth. |c. |without division of labor. | |b. |at full potential. |d. |as a free enterprise economy. |

____17.Actions in one part of the country or world that have an economic impact on what happens elsewhere are examples of |a. |opportunity costs. |c. |specialization. | |b. |trade-offs. |d. |economic interdependence. |

____18.[pic]

Study the graph. Suppose this nation starts with producing all military goods. It then decides to produce a mix of civilian and military goods represented by point B. What represents the cost in military goods given up?

|a. |the vertical distance between point x and point y | |b. |the horizontal distance between point y and point z | |c. |the horizontal distance between point z and point E | |d. |the vertical distance from point A to point x |

____19.
|“It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to | |buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his | |own clothes, but employs a tailor.... All of them find it [in their best interests] to employ their whole industry in a way in which| |they have some advantage over their neighbours, and to purchase...whatever else they...
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