ECON

increasing opportunity cost

in most cases, land, labor, and capital cannot easily be shifted from producing one good to another

supply and demand analysis is used

both microeconomics and macroeconomics.

Production Efficiency

Goods and services are produced at their lowest possible resource (opportunity) cost

Efficiency

How well resources are used and allocated

Which is not an example of a basic economic question

How will the system accommodate change?

Gains From Specialization

INDIVIDUALS TEND TO WORK IN CAREERS MOST SUITED TO THEM, SUCH AS COOKING OR MECHANICS.

Opportunity Cost

The cost of a good in terms of another that must be given up

Equity

The fairness of various issues and policies

The theory of comparative advantage says that countries

should export goods they can make at a lower opportunity cost

Investment in human capital refers to

education and training

The economics of uranium mining would be studied in:

microeconomics

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a

model

A lawyer can argue a case in court for one hour and make $300. She could alternatively use that hour of time to type a legal brief in her office. What is the opportunity cost of her typing the legal brief?

$300 since that is how much she would have made in court

CETERIS PARIBUS

- Assumption used in economics that all other relevant factors or variables are held constant. - Models are crafted from new ideas, then tested against real world data. For example, will more government spending lead to economic growth?

PRACTICAL CONSTRAINTS ON TRADE

-COSTS OF TRADE, INCLUDING TRANSPORTATION, COMMUNICATIONS, AND GENERAL COSTS OF BUSINESS (HOWEVER, THESE COSTS HAVE FALLEN IN RECENT DECADES) -DIMINISHING RETURNS TO SPECIALIZATION -GOVERNMENTS LIMITING TRADE TO HELP CERTAIN INDUSTRIES OR IN RESPONSE TO A RECESSION

The reason for trade

1. Absolute advantage: a country can produce more of a good than another country using the same amount of resources 2. Comparative advantage: a country has a lower opportunity cost of producing a good than another country

8 principles

1. ECONOMICS IS CONCERNED WITH MAKING CHOICES WITH LIMITED RESOURCES. 2. WHEN MAKING DECISIONS, ONE MUST TAKE INTO ACCOUNT TRADEOFFS AND OPPORTUNITY COSTS. 3. SPECIALIZATION LEADS TO GAINS FOR ALL INVOLVED. 4. PEOPLE RESPOND TO INCENTIVES, BOTH GOOD AND BAD. 5. RATIONAL BEHAVIOR REQUIRES THINKING ON THE MARGIN 6. MARKETS ARE GENERALLY EFFICIENT; WHEN THEY AREN'T, GOVERNMENT CAN SOMETIMES CORRECT THE FAILURE. 7. ECONOMIC GROWTH, LOW UNEMPLOYMENT, AND LOW INFLATION ARE ECONOMIC GOALS THAT DO NOT ALWAYS COINCIDE. 8. INSTITUTIONS AND HUMAN CREATIVITY HELP EXPLAIN THE WEALTH OF NATIONS.

BASIC ECONOMIC QUESTIONS EACH SOCIETY MUST ANSWER

1. WHAT GOODS AND SERVICES ARE TO BE PRODUCED? 2. HOW ARE THESE GOODS AND SERVICES TO BE PRODUCED? 3. WHO WILL RECEIVE THESE GOODS AND SERVICES?

Which situation(s) may require government intervention?I. A local business has made a profit in each of the last 10 years.II. Students are having difficulty deciding whether to go the beach or to go hiking for their class trip.III. A manufacturing firm on a river is dumping production runoff into the water.

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Production possibilities frontier (PPF)

A model that shows the combination of two goods a society can produce at full employment

If Egypt has a comparative advantage relative to Mexico in the production of cotton cloth, this means that: A. Cotton cloth can be produced at a lower opportunity cost in Egypt than in Mexico B. Egypt can produce more cotton cloth than Mexico C. Mexico should produce cotton cloth for export to Egypt D. Egypt does not experience an increasing opportunity cost when producing cotton cloth

A. Cotton cloth can be produced at a lower opportunity cost in Egypt than in Mexico

If an economy encounters an increasing opportunity cost when it produces more and more of one thing: A. The production possibilities frontier will have a concave shape B. The production possibilities frontier will shift inward as production of both goods increases C. It will not be able to attain points on the frontier D. It should split its resources evenly between the two goods represented on the axes

A. The production possibilities frontier will have a concave shape

Normative Question

Addresses society's beliefs about what should or should not take place

David Ricardo (1772-1823)

Argued against Corn Laws (high tariffs on imported grain) in British Parliament Developed a key idea: Comparative advantage. Still the ideological foundation for free trade.

Which of the following is NOT a defining characteristic of market economies? A. Consumers and producers respond to prices B. The government owns the resources used for production C. The government protects property rights and enforces constructs D. Competition between buyers and sellers leads to efficient production

B. The government owns the resources used for production

How does an economy achieve production efficiency? A. By avoiding the use of scarce resources B. By producing goods that provide the greatest possible benefits, regardless of cost C. By producing goods at their lowest possible opportunity cost D. By encouraging firms to pay attention to the interests of community stakeholders

C. By producing goods at their lowest possible opportunity cost

As a country moves leftward from point to point up along its production possibilities frontier A. it is acquiring more resources B. Some potentially productive resources are being left idle C. It is producing more of the good measured on the vertical axis D. The standard of living is rising

C. It is producing more of the good measured on the vertical axis

What condition must be necessary in order for a country to gain from trade: A. It must specialize and trade with a wealthier country B. It must specialize and trade with poorer country C. It must specialize and trade according to its comparative advantage D. It must specialize and trade according to its absolute advantage

C. It must specialize and trade according to its comparative advantage

Positive Question

Can be answered by available information or facts

What would be considered physical capital? A. water used for agricultural irrigation B. Money invested in a start-up business for space tourism C. An entrepreneur's vision of how to reach a large number of customers through social media D. A forklift used in a distribution center for an online retailer

D. A forklift used in a distribution center for an online retailer

An outward shift of the production possibilities frontier shows that the economy is A. running out of scarce resources B. producing more of the good measured on the vertical axis C. Producing more of the good measured on the horizontal axis D. acquiring more resources or making better use of the resources it has

D. acquiring more resources or making better use of the resources it has

MACROECONOMICS

Is the study of broader issues in the economy, such as inflation, unemployment, and national output.

MICROECONOMICS

Is the study of decision making by individuals, businesses, and industries.

Factors of Production

Land, labor, capital, and ideas

Messy Outcomes

MARKETS SOMETIMES RESULT IN UNDESIRABLE OUTCOMES, SUCH AS POLLUTION.

PPF and economic growth

PPF SHIFTS TO THE RIGHT AS AN ECONOMY GROWS AS A RESULT OF: 1. EXPANDING RESOURCES. 2. IMPROVING TECHNOLOGIES

Efficiency of Competition

PRIVATE MARKETS AND COMPETITION FORCE BUSINESSES TO BE EFFICIENT OR BE DRIVEN OUT.

Opportunity Cost

THE NEXT BEST ALTERNATIVE; WHAT YOU GIVE UP TO DO SOMETHING OR PURCHASE SOMETHING

Allocative Efficiency

The mix of goods and services is just what society desires

Scarcity

UNLIMITED WANTS CLASH WITH LIMITED RESOURCES. EVERYONE FACES SCARCITY. ECONOMICS FOCUSES ON THE ALLOCATION OF SCARCE RESOURCES.

Which of these is NOT an example of market failure?

competition leads firms to provide products at the lowest possible price

A production possibilities frontier that is a straight line is the result of

constant opportunity cost

The limits on international trade include all of these EXCEPT

decreasing opportunity cost and increasing returns

The opportunity costs of attending college do NOT include

food expenditures

which statement is true about specialization and exchange between two individuals

generally benefit the poorer and richer

In the study of economics, the goals of efficiency and equity are often

in conflict with one another

Paying a salesperson more for increased sales is an example of:

incentive

Which statement is a key idea in economic thinking?

incentives matter

Scarcity

is faced by all individuals in society

People use _____ to determine how many hours to work, and businesses use _____ to determine how much of their product they are willing to supply to the market.

marginal analysis; marginal analysis

In a _____ economy, individuals and firms own most resources, and in a _____ economy, the government controls most resources.

market; planned

If the government of Spain decides to spend less on the military and more on health care, the forgone spending on military items represents the _____ of the extra health care.

opportunity cost

When the government chooses to use resources to build tourist centers, the selected resources are no longer available to build highways. This BEST illustrates the concept of

opportunity cost

Because of scarcity

people face tradeoffs with every choice they make

Economics is best defined as the study of how

people make rational decisions.

When goods are produced at the lowest possible cost, an economy is said to have achieved

production efficiency

_____ occurs when goods and services are produced with as few resources as possible, while _____ occurs when the mix of goods and services produced is the most desired by society.

production efficiency; allocated efficiency

Which is NOT a source of economic growth?

reducing international trade

Which is an example of capital in the production process of an amusement park?

rollercoaster

If an economy is operating at a point that is inside of its production possibilities frontier, then it can be assumed that its resources are

underutilized

macroeconomics is concerned with issues such as

unemployment