Five Foundations of Economics
This is the study of how to allocate resources to satisfy wants and needs.
Economics
To what does the term "trade-off" refer?
The alternatives we give up when making choices
What creates comparative advantage?
Specialization
What does the production possibilities frontier (PPF) show?
The trade-off between the efficient production of two different goods.
What is an "absolute advantage"?
One producer can create more of a good than another using the same quantity of resources.
Because of this, individuals and society must choose which wants and needs to satisfy.
Scarcity
What do economists call the highest valued alternative we forfeit when making a choice?
Opportunity Cost
Is the opportunity cost of a person with a comparative advantage higher, lower or equal to that of another person?
Lower opportunity cost
What happens to the opportunity cost when we produce more of one good?
Opportunity cost of that good will increase.
What gives a producer a comparative advantage?
He/She can produce a good at a lower opportunity cost.
What branch of economics studies of the operation of the economy as a whole?
Macroeconomics
The optimal quantity of a good represents the point where marginal benefits are equal to what?
Marginal costs
The statement "Increases in the minimum wage cause unemployment"? is what type of statement?
A positive statement
If Michelle can produce 10 sculptures in a day or 5 paintings, what is her opportunity cost of a sculpture?
1/2 painting.
At what price would two parties both benefit from trade?
At a price somewhere between their opportunity costs of production.
Commission sales provides what type of incentives?
A direct positive incentives
What does a store manager consider when deciding whether to stay open 24 hours per day?
Whether the marginal benefit of staying open all day is at least equal to the marginal cost of staying open.
What does the term "ceteris paribus" mean?
Other things being equal
What happens to the PPF when the labor force increases?
The PPF shifts outward.
What do economists call goods that are produced for current consumption?
Consumer goods
What type of incentives can lead to unintended consequences?
Indirect incentives
Who benefits when trade is voluntary?
Both the buyer and the seller.
What are variables controlled for in a model are called?
Endogenous factors
What effect would a technological improvement affecting production of only one good have on the shape of the PPF?
The PPF would shift outwards for that good only.
What is the opportunity cost of increased investment in capital goods today?
Fewer consumer goods today.