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Chapter 3 – Klein Economics Review

Mothers Against Drunk Driving (MADD) would be an example of a(n) ______ that tries to persuade government officials to vote for tougher penalties for driving while intoxicated.
Interest Group
It is in the ______ for the government to put expiration dates on perishable products.
Public Interest
A warning on a bottle of Benadryl that it may cause drowsiness would be an example of a(n)
Public Disclosure Law
Why has America been referred to as the land of opportunity?
It provides anyone from any background the possibility of success through hard work.
What basic principles are fundamental to American free enterprise?
Open opportunity, private property rights, free contracts, voluntary exchange, profit motive, legal equality, and competition.
In what two ways does the the Bill of Rights protect and guarantee individual’s freedom to engage in business activities?
Recognize property rights and limits on taxation.
Why do Americans want the government to intervene in their free enterprise economy?
To protect the public interest.
What is the purpose of free enterprise?
To give consumers freedom of choice
How does the information provided by the government influence consumer decisions?
Consumers do not buy products revealed to be dangerous.
What is considered a negative effect of government regulations?
All of the answers
(They stifle competition, they cut into company profits, they cause higher prices for consumers)
The study of the economic behavior and decision making of small units such as individuals and businesses
Microeconomics
A period if macroeconomics expansion followed by a period of contraction
Business Cycle
The study of the behavior and decision making of entire economics
Macroeconomics
The process used to produce a good or service
Technology
The total value of all final goods and services produced in a particular economy in a year
Gross Domestic Product (GDP)
Business cycles occur in free enterprise systems because
Economic decisions about factors such as prices, production, and consumption are determined by the market.
Policymakers pursue all of the following goals to stabilize the economy EXCEPT
Stable Productivity
The federal government monitors and regulates Americans banks and other financial institutions
To shield money from the damaging effects of economic downturns
The government encourages an increased level of productivity by
funding research and development projects at many levels
Improved technology helps create a higher standard of living for future generations by
providing additional goods and services
The force that encourages people and organizations to improve their material well-being is called
the profit motive
The concept that everyone can compete in the marketplace is called
open opportunity
The concept of giving everyone the same legal rights is called
legal equality
The concept that people have the right and privilege to control their possessions as they wish is called
private property rights
The concept that people may decide what agreements they want to enter into is called
free contract
The concept that people may decide what and when they want to buy and sell is called
voluntary exchange
The rivalry among sellers to attract customers while lowering costs is called
competition
A private organization that tries to persuade public officials to act or vote according to group members’ interest is called
an interest group
Laws requiring companies to provide full information about their products are called
public disclosure laws
The concerns of the public as a whole are called
public interest
The study of the behavior and decision making or entire economics is called
macroeconomics
The study of the economic behavior and decision making of small units, such as individuals, families, and businesses is called
microeconomics
The total value of all final goods and services produced in a particular economy in a year is called
Gross Domestic Product
A period of macroeconomics expansion followed by a period of contraction is called
the business cycle
The work ethic is a commitment to the value of work and purposeful activity
True
Technology is the process used to produce a good or service
True
The part of the economy that involves the transactions of the government are called
The public sector
A shared good or service for which it would be impractical to make consumers pay individually and to exclude non payers is called
A public good
The part of the economy that involves the transactions of individuals and businesses is called
the private sector
Someone who would not choose to pay for a certain good or service, but who would get the benefits of it anyway if it were provided as a public good is called
a free rider
A situation in which the market does not distribute resources efficiently is called
a market failure
An economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume is called
an externality
The poverty threshold is an income level above that which is needed to support families or households
False
Government aid to the poor are called
welfare
Direct payments of money to eligible poor people are called
cash transfers
Goods and services provided for free or at greatly reduced prices are called
in-kind benefits
A(n) ______ is a situation in which the market does not distribute resources efficiently
market failure
A(n) _____ is an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume
externality
Which of the following is NOT a reason for the government to provide a good or service as a public good?
Increasing the number of consumers would increase the cost to a private provider
What part of the economy finances public goods?
public sector
If a teacher decides to have her students volunteer at a community nursing home after school, which of the following would be negative externality?
A student would be unable to work at her part-time job on that afternoon
Someone who would not choose to pay for a certain good or service, but who can still reap the benefits of it anyway if it is a public good is called
a free rider
The free-rider problem is that:
People will not voluntarily pay for for something that they can obtain without paying
Which of the following is an example of a public good?
a fireworks display
Negative externalities arise:
when firms “use” resources without being compelled to pay for their full costs
Goods and services provided for free or at greatly reduced prices
In-kind benefits
An income level below that which is needed to support a household
Poverty Threshold
Government aid to the poor
Welfare
Direct payments of money to eligible poor people
Cash Transfers
Level of economic well-being
Standard of Living
Various federal, state, and local government programs help to raise people’s standard of living because
certain groups of people have fewer opportunities to be productive
The most common in-kind benefits are
food giveaways, food stamps, subsidized housing, and legal aid (on test)
All of the following programs provide direct cash transfers EXCEPT
Medicaid
(on test)
Health insurance for the elderly, the poor, and the disabled is provided by
Medicare and medicaid under the Social Security Program
Education programs make the economy more productive by
adding to human capital and labor productivity

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