ECON-201 Ch2

production possibilities curve

A curve that shows the possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used.

The opportunity cost of a college degree includes the:

A. goods that a student cannot purchase because of spending on​ books, tuition,​ food, and housing and the foregone income that could have been earned while in college. B. the costs of​ food, housing,​ books, tuition that a student could have purchased. C. the cost of​ college, the foregone income while in​ college, and the inability to go to another college. (D.) goods that a student cannot purchase because of spending on books and tuition and the foregone income that could have been earned while in college.

The production possibilities curve illustrates the notion of opportunity cost because

A. points inside the production possibilities curve are inefficient. (B.) as more of one good is​ produced, less of the other can be produced. C. points outside the production possibilities curve are unattainable. D. if there are more​ resources, the curve will shift.

Principal of Voluntary Exchange

a voluntary exchange between two people makes both people better off

Marginal Principle

increase the level of an activity as long as its marginal benefit exceeds marginal cost. Choose the level at which the marginal benefit equals the marginal cost.

Principal of Diminishing Returns

suppose outpost is produced with two or more inputs, and we increase one input while holding the other input or inputs fixed. beyond some point- called the point of diminishing returns- output will increase at a decreasing rate

real value

the value of an amount of money in terms of what it can buy

opportunity cost

what you give up to get something else

When using the principle of opportunity cost to explore the cost of military​ spending, the policy question is

(A.) whether the benefits of the war exceed the opportunity cost of war. B. which side is likely to win the war and how will that affect foreign policy. C. how much will the war​ cost, and who is likely to win. D. will it require that a military draft be used.

Real-Nominal Principle

What matters to people is the real value of money or income—its purchasing power—not its "face" value.

marginal benefit

the additional benefit resulting from a small increase in some activity

marginal cost

the additional cost resulting from a small increase in some activity

nominal value

the face value of an amount of money

principal of oppurtunity cost

the opportunity cost of something is what you sacrificed to get it.