(1.2) Fundamentals 2

According to the circular flow diagram, which two groups interact in the resources market?

Households and firms

According to the circular flow, which two groups interact with each other in the product market?

Households and firms

Funds that firms pay for resources are costs to firms but they represent which of the following type of flow to households?

Income

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

Opportunity

_____ is/are also called factors of production since they are transformed into output during the production process.

Resources

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

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

The production combinations that fall directly on the production possibilities frontier (curve) are _____ and efficient.

attainable

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

beyond

A model that concisely describes how goods, services, resources, and money flow back and forth in an economy is the:

circular flow model.

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

constant

When resources are fixed, increasing the production of one good causes a(n) _____ in the production of the other.

decrease

On a production possibilities frontier (PPF) with Good X on the horizontal axis and Good Y on the vertical axis, we can say that the slope of the PPF (in absolute value) equals the opportunity cost of producing Good X with respect to the production of Good Y. This is true because the slope:

describes the trade-off resulting from the production of Good X in terms of Good Y.

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 said to be _____.

efficient

Combinations of output along the production possibilities frontier correspond to:

efficient use of resources.

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: Multiple choice question. efficient.

efficient.

In the circular flow model,- _____ must buy resources in order to produce the output they will sell to households.

firms

In the circular flow model, households sell resources to and buy products from:

firms.

In the two sector circular flow model, ________ must buy resources from _________ in order to produce the output they will sell to households.

firms; households

When resources are _____, increasing the production of one good causes a decrease in the production of the other.

fixed

In the circular flow model, the market economy creates:

flows of goods and services resources and money.

Graphing the information in the production possibilities schedule produces the production possibilities:

frontier.

In the circular flow model, _____ can obtain the income they need to buy the products they want to consume only by selling their resources.

households

In the simple circular flow model, firms will buy resources from and sell products to:

households.

When resources are allocated in such a way that it is possible to increase the production of one good without decreasing the production of another, then the allocation of resources is:

inefficient.

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

Resources are also called:

inputs because they are transformed into output in the production process.

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.

Combinations outside of the production possibilities frontier are:

not currently possible to produce.

The value of the next-best forgone alternative is the _____ cost.

opportunity

Consider a production possibilities frontier (PPF) with Good X on the horizontal axis and Good Y on the vertical axis. The slope of the PPF tells us the _____ of producing one additional unit of Good X.

opportunity cost

Individuals and countries specialize because of differences in:

opportunity costs.

Combinations of production that fall inside the production possibilities frontier are _____ but not efficient.

possible

The line (or curve) that represents the combinations of the two goods produced on the production possibilities frontier is a boundary between output levels that are _____ and output levels that are unattainable.

possible

According to the circular flow diagram, when a firm receives money for a good or service it sold to a household, the interaction occurs in the _____ market

product

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

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.

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

production possibilities schedule.

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

production possibilities schedule.

The function of firms in the circular flow model is to _____ resources and _____ products.

purchase; sell

According to the circular flow diagram, a household receives a wage for supplying labor to a firm in the _____ market

resource

According to the circular flow diagram, households and firms interact in the ______ and the ______.

resource market; product market

The circular flow model shows how households and firms interact in two key markets: the _____ market and the _____ market.

resource product

Although points on the production possibilities frontier represent the different combinations of output, ultimately what they show is how we allocate our scarce _____ to the production of two different goods or services.

resources

Combinations of output along the production possibilities frontier are the result of making efficient use of all available _____.

resources

In the circular flow model, firms can produce the output they sell to households only by buying _____ from households.

resources

In the circular flow model, households can obtain the income they need to buy the products they want to consume only by selling their _____ - also known as factors of production.

resources

The points on the production possibilities frontier show how we allocate our scarce _____ to the production of two different goods or services.

resources

In the circular flow model, households can obtain the income they need to purchase the products for consumption only by selling:

resources.

In the circular flow model, households _____ resources and _____ products.

sell; buy

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.

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

Opportunity cost is:

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

Individuals and countries specialize because the opportunity cost of producing goods and services:

varies.

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

within