Econ Chapter I

Economists use the phrase _____ to refer to the positive gains enjoyed by both buyers and sellers when they trade.

"trade creates wealth"

__ the study of how individuals and societies chose to allocate scarce resources.

Economics

Which of the following help measure the quality of a good economic model?

How well it reflects reality Whether it gives us insights that can be used in the real world

In which of the following conditions will producers not be eager to sell but buyers will be willing and able to buy?

If the price is too low

___ cost is most plainly visible when spending more money on one thing as it means that less money can be spent on another thing.

Opportunity

the value of the opportunity that you give up when you choose one activity instead of another.

Opportunity Cost

___ interest is the idea that people choose to do the things that interest them.

Self

Evaluate the following statement: "I love ice cream. But I've eaten so much ice cream today, I can't possible eat another cup."

The marginal benefit of eating ice cream is falling.

Beneficial terms of trade are the terms—or prices—that are between the two parties' opportunity costs

True

Producing a good or a service at a lower opportunity cost gives the producer:

a comparative advantage in the market.

If an activity is performed where the marginal benefit is greater than the marginal cost (MB > MC), there is:

a net gain to the economy.

Combinations lying ___ the production possibilities frontier are impossible to produce with the current resources and technology.

above

Because the world is characterized by scarcity, people must choose between different uses for the resources at their disposal. In economics, we refer to this as:

allocating resources

Comparative advantage refers to:

being the lowest relative opportunity cost producer of a good.

Combinations lying ___ the production possibilities frontier are possible but inefficient with the current resources and technology.

below

A producer has a(n) ___ advantage in the production of a good or a service if his or her relative opportunity cost of production is lower than the opportunity cost of other producers.

comparative

Given the option of being self-sufficient or trading with others, as long as a(n) ___ advantage exists, there will be potential for trade to make both parties better off.

comparative

Specialization in a particular good is based on ___ advantage on the good.

comparative

Gains from trade can be measured by:

comparing the levels of consumption available before and after the trade.

If the marginal benefit of an activity exceeds the marginal cost of the activity (MB > MC), we should

continue to increase output until MB = MC.

As the amount of an activity increases, its marginal benefit:

decreases

Specialization causes individuals and nations to rely on one another and increases the:

degree of interdependence between them.

The quality of a(n) _______ model can be measured by how well it reflects reality and whether it gives us insights that can be used in the real world.

economic

When resources are allocated in such a way that it is possible to increase the production of one good only by decreasing the production of another, then the allocation of resources is:

efficient.

In economics - resources can also be called

factors of production

Combinations of production that fall inside the production possibilities frontier are ________.

feasible but not efficient

When the producer of a good or service has a lower opportunity cost than other producers, that producer has an advantage in the market because:

he or she will be able to sell at a lower price than other producers.

On a production possibilities frontier (PPF), if you are able to increase the production of both goods at the same time, then initially resources were allocated ___.

inefficiently

All physical and mental activity devoted to producing goods and services is classified under the resource category called

labor.

Anytime the terms of trade change and move closer to someone's opportunity cost, that person is going to benefit ___ from trade than he or she did before.

less

When the opportunity cost associated with increasing the production of one good or service in terms of another is constant at every level of production, then the production possibility frontier is:

linear

The additional benefit associated with one more unit of an activity is the _____ benefit.

marginal

An economy is better off when it stops producing output at the point where:

marginal benefit = marginal cost.

When you decide - after studying for three hours - that another hour of sleep is more beneficial to you than a fourth hour of studying, you are engaging in:

marginal decision making

When you decide to turn off the bedroom light on your way to the kitchen so that you can save a little money on your electric bill, you are engaging in:

marginal decision making

When you decide to turn off the bedroom light on your way to the kitchen so that you can save a little money on your electric bill, you are engaging in:

marginal decision making.

Focusing production entirely on one good or service leaves you susceptible to changes in the

market

As long as there are differences in ___ costs, there are comparative advantages and there will be potential for trade to make both parties better off.

opportunity

Individuals and countries specialize because of differences in:

opportunity costs.

Money supply by a firm on machinery that is designed to improve future productivity is called:

physical capital

Tools - machinery - and infrastructure are classifies under the resource category of

physical capital.

Capital is sometimes divided into two categories: ________ capital and ________ capital.

physical; human

When people trade - producers can achieve something they can't without trade. Thus - only with trade is it

possible to operate outside the production possibilities frontier.

A graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology is the:

production possibilities frontier.

The production possibilities frontier, or curve, is a graphical representation of the

production possibilities schedule.

A useful way to visually represent the data in a production possibilities schedule is by means of a graph called a(n) ___ ___ frontier.

production possibility

Self interest, marginal decisions, and optimization all form the basis of __ decision making.

rational

Drinkable water is ______ water in general.

relatively more scarce than

The opportunity cost of producing a good for one producer may be different from that of another because of differences in available

resource; tech

Because the world is characterized by scarcity, people must allocate the limited __ at their disposal among many competing uses.

resources

Because resources are __, they must be allocated between competing uses.

scarce

Economics is the study of how individuals and societies allocate __ resources among many competing users.

scarce

A common economic situation where an economy resources are insufficient to meet the existing wants and must be used judiciously is referred as

scarcity

A major problem faced by developing countries is the relative __ of drinkable water as compared to water in general.

scarcity

Due to the ______ of natural resources, we cannot have all the housing and all the forests we may want.

scarcity

The idea that people choose to do the things that interest them is:

self-interest

A strong economic model allows us to analyze the economic events of the world by:

simplifying a very complex economic world.

The opportunity cost of producing a good or a service can be found by:

solving for the cost of one good in terms of another.

The practice of producing a single good or service rather than producing multiple goods or services is called _____ (one word).

specialization

Because of differences in opportunity costs, individuals and businesses

specialize in the production of the good for which they wield a comparative advantage.

When production is characterized by constant opportunity costs, the resulting production possibilities frontier will be a __ line.

straight

A potential risk of specialization is:

susceptibility to market fluctuations.

Marginal cost is:

the additional cost associated with one more unit of an activity.

Equilibrium occurs when:

the marginal benefit equals the marginal cost.

The optimal level of economic activity occurs when:

the marginal benefit equals the marginal cost.

Terms of trade refers to

the price of one good or service in terms of another.

Whether a good or a service will be traded internationally depends largely on:

the terms associated with the trade.

Because resources are scarce

they must be allocated between competing uses.

The marginal benefit of an activity can be found by calculating the change in:

total benefits as the level of the activity increases by one unit.

The marginal cost of an activity can be found by calculating the change in:

total costs as the level of the activity increases by one unit.

Screenshot: What is the opportunity cost of Product B?

½ Product A