ECON 2302.1003 CHAPTER 2 OVERLOOK

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opportunity cost

whatever must be given up to obtain some item

Enforcement of Contracts and Property Rights

-Important for transactions across time to occur. -An independent court system is critical here.

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

Increasing opportunity cost along a bowed-out production possibilities frontier occurs because A) some factors of production are not equally suited to producing both goods or services. B) of the scarcity of factors of production. C) of inefficient production. D) of ineffective management by entrepreneurs.

A) some factors of production are not equally suited to producing both goods or services.

The production possibilities frontier model assumes all of the following except A) labor, capital, land and natural resources are fixed in quantity. B) any level of the two products that the economy produces is currently possible. C) the level of technology is fixed and unchanging. D) the economy produces only two products.

B) any level of the two products that the economy produces is currently possible.

Comparative advantage means A) compared to others you are better at producing a product. B) the ability to produce a good or service at a lower opportunity cost than any other producer. C) the ability to produce a good or service at a higher opportunity cost than any other producer. D) the ability to produce more of a product with the same amount of resources than any other producer.

B) the ability to produce a good or service at a lower opportunity cost than any other producer.

It is not possible to have an absolute advantage in producing a good or service without having a comparative advantage. True False

False A firm may be able to produce more of a good or service than its competitors, but that does not necessarily mean it can produce the good or service at a lower opportunity cost than its competitors

To compete in the automobile market, Tesla must make many strategic decisions such as whether to introduce a new car model, how to sell and service its cars, and where to advertise. At Tesla's Fremont, California plant, managers must decide on the monthly production quantities of their S and X models. In making this decision, the managers A) will always decide on production quantities in which revenues are maximized. B) face no trade-off because the Fremont plant only produces these two models of the many Tesla models produced worldwide. C) will choose to only produce the quantity of S and X models where marginal cost equals zero. D) face a trade-off, because producing more of one model means producing less of the other.

D) face a trade-off, because producing more of one model means producing less of the other.

Use a _____________________ to analyze opportunity costs and trade-offs.

Production possibilities frontier

Scarcity requires _________________. Economics teaches us tools to help us make good _____________.

Trade-offs; trade-offs

If additional units of a good could be produced at a constant opportunity cost, the production possibilities frontier would be linear. True False

True

The basis for trade is comparative advantage, not absolute advantage

True

The payment received by suppliers of entrepreneurial skills is called profit. True False

True

Market

a group of buyers and sellers of a particular good or service, and the place they come together to trade.

circular-flow diagram

a model that illustrates how participants in markets are linked

Shifts in the production possibilities frontier represent ________________.

economic growth

Households receive payments for these (capital) factors by selling them to firms in _______________.

factor markets

Households consist of individuals who provide the ___________________________: labor, capital, natural resources, and other inputs used to make goods and services.

factors of production

free market

few government restrictions on how a good or service can be produced or sold, or on how a factor of production can be employed

Markets with ____________________ allow the collective actions of households and firms to signal the relative worth of goods and services.

flexible prices

the "invisible hand" allows ___________________ responses to ___________________ end up satisfying the wants of customers.

individual; collectively

The principle of ________ is that the economic cost of using a factor of production is the alternative use of that factor that is given up.

opportunity cost

Firms supply goods and services to ____________________; households buy these products from the firms.

product markets

Legal Environment

regulatory policies and norms within which organizations must operate

________ exists because unlimited wants exceed the limited resources available to fulfill those wants.

scarcity

comparative advantage

the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors

absolute advantage

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

economic growth

the ability of the economy to increase the production of goods and services

Trade

the act of buying and selling

production possibilities frontier

the line on a production possibilities graph that shows the maximum possible output combinations of two goods that can be produces with available with resources and current technology.

product market

the market in which households purchase the goods and services that firms produce

factor markets

the markets where productive resources are bought and sold

The production possibilities frontier shows __________________________.

the maximum attainable combinations of two products that may be produced in a particular time period with available resources.

property rights

the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it

protection of private property

when criminals can take your wages or profits, households and firms have little incentive to work hard


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