Fundamentals - Econ 2302

The earliest two fundamental steps in learning the economic way of thinking are understanding

- How people make choices - How resources and scarcity affect the costs and benefits of choices

Capital is sometimes divided into two categories:

- Physical capital - Human capital

When people specialize according to their comparative advantages:

- The opportunity cost is reduced. - Overall production rises.

In the terms of trade are the same as your opportunity cost, you will receive _____ gains from the trade.

0

Consistent Opportunity Cost

A characteristic of production such that the opportunity cost associated with increasing the production of one good or service, in terms of another, is constant at very level of production.

Production Possibilities Frontier (PPF)

A graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology. The PPF shows combinations that are both attainable and efficient.

Law of Increasing Opportunity Cost

A law in economics that reflects the observation that since some resources are better suited to producing one good or service than another, as the production of a good or service increases, the opportunity cost of each addition unit rises.

Circular Flow Model

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

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

A net gain to the economy

The _____ cost associated with one ore more unit of an activity is the marginal cost.

Additional

Land

All natural resources used in production; sometimes referred to as "gifts of nature."

Labor

All physical and mental activity devoted to producing goods and services.

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

Allocating

Efficient Allocation of Resources

Allocation of resources in such a way that is possible to increase the production of one good only by decreasing the production of another.

Inefficient Allocation of Resources

Allocation of resources in such a way that it is possible to increase the production of one good without decreasing the production of another.

Resources

Anything this is used to produce a good or service, whether it is provided by nature or is manufactured.

Comparative advantage refers to:

Being the lowest relative opportunity cost producer of a good.

As the amount of activity increases, its marginal _____ falls and its marginal _____ rises.

Benefit and cost

As the amount of an activity increases, its marginal _____ falls and its marginal _____ rises.

Benefit and cost

Beneficial terms of trade are the terms, or prices, that are _____ the two parties' opportunity costs.

Between

Beneficial terms of trade are the terms, or prices, that are ______ the two parties' opportunity costs.

Between

Tools, machinery, infrastructure, and training to employees are classified under the resource category of _____.

Capital

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

Comparative

AS long as there are differences in opportunity costs, there are _____ advantages, and there will be potential for trade to make both parties better off.

Comparative

If you are relatively better at something, then you are said to have a(n) _____ advantage in that activity.

Comparative

Specialization is based on _____ advantage.

Comparative

_____ advantage is the foundation of establishing benefits of trade.

Comparative

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

Comparative advantage

Give the option of being self-sufficient or trading with others, as long as _____ _____ exists, there will be potential for trade to make both parties better off.

Comparative advantages

The simple model of production assumes that the opportunity cost of a production is _____.

Constant

The simple model of production assumes that the opportunity cost of production is _____.

Constant

When opportunity costs associated with increasing the production of good or service in terms of another is constant at energy level of production, there is:

Constant opportunity cost

Microeconomics

Deals with individuals and individual firms

Macroeconomics

Deals with the economy as a whole

When resources are fixed, increasing the production of one good causes a ______ 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. This is true of the slope:

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

Individuals and countries specialize because of _____ in opportunity costs.

Differences

The wealth, or additional well-being, created by trade,

Does not have to be monetary.

_____ is the study of an individuals and societies allocate scarce resources among many competing uses, and how this decision-making affects the economy at large.

Economics

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

Efficient

_____ ability involves assuming risk and organizing resources into a productive process rather using resources in production.

Entrepreneurial

_____ ability is the talent or ability to combine land, labor, and capital to produce goods and services.

Entrepreneurial

What are other names for resources?

Factors of production and inputs

Someone who is self-interested only preforms actions for his or her own benefit.

False

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

Firms

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

Frontier

Optimization behavior implies that if the marginal cost of an activity is _____ _____ the marginal benefit, you should not engage in that activity.

Greater than

If the price is too _____, producers will be eager to sell, but buyers will NOT be willing or able to buy.

High

In the circular flow model, _____ and _____ interact in the resource market and the production market.

Household and firms

Economics is about:

How people make choices in a world of scarcity.

_____ capital refers to the knowledge and skills that people acquire to increase productivity.

Human

The law of _____ _____ cots days that because some resources are better suited to producing one good or service than another, as the production of a good or a service increases, the _____ cost of each additional unit rises.

Increasing opportunity; opportunity

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

Specialization cause individuals and nations to rely on one another, thus increasing he degree of _____ among them.

Interdependence

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

Labor

All natural resources used in production under the resource category called _____.

Land

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

Energy as a whole is _____ scarce than wind energy.

Less

For parties to be willing to trade, he terms of trade must be:

Less than the buyer's opportunity cost but greater than he seller's opportunity cost

If the price is too _____, producers will not be eager to sell, but buyers will be willing and able to buy.

Low

_____ examines the entire economy of a state, a country, or even the world.

Macroeconomics

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

Market

_____ is a branch of economics that typically deals with how prices are determined in markets and how markets adjust to a variety of different events.

Microeconomics

The producer with the lowest relative _____ cost has a comparative advantage and should specialize in the production of that good.

Opportunity

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

Opportunity

With trade, the person who benefits more is the person who trades at, or near, the other person's _____ cost.

Opportunity

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

Opportunity

_____ capital refers to tangible items that are created to increase productivity, such as tools, factories, machinery, etc.

Physical

Labor as a resource is defined as all _____ and _____ activity devoted to producing goods and services.

Physical and mental

When people trade, producers can achieve something they can't without trade. Thus, only its trade is

Possible to operate outside 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 scheduele

The production possibilities frontier, or cure, is graphical representation of the

Production possibilities schedule

Anything that is used to produce a good or a service, whether it is provided by nature or is manufactured, is a(n) _____.

Resource

Anything that is used to produce a good or service, whether it is provided by nature or manufactured, is a(n) _____.

Resource

In the circular flow model, the two markets are the _____ and the _____ market.

Resource and product

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

Resources

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

Resources

In the circular flow model, households can obtain come they need to buy the products they want to consume only by selling ______.

Resources

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

Scarce

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

Self

Rational decision making is based on three assumptions:

Self-interest, marginal decision making and optimization

The _____ of the production possibilities frontier equals the trade-off the production of one good or service in terms of the other.

Slope

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

Solving for the cost of one good in terms f another

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

In the real world, the opportunity cost increases as production increase, because:

Some resources are better suited for producing some goods or services than others.

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

Specialization

_____ in trade causes individuals and nations to become interdependent.

Specialization

_____ is the result of low-cost producers focusing all their efforts on producing a single good or service.

Specialization

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

Straight

Comparative Advantage

The ability to produce a good or service at a lower relative opportunity cost than another producer.

Gains from Trade

The benefit, or wealth, that accrues to a buyer or seller as a result of trading one good, service, or resource for another. The wealth, or additional well-being, created by trade does not have to be monetary.

Increasing marginal cost describes

The direct relationship between the marginal cost associated with the use of a good or a service and the quantity produced.

Optimum level of Output

The level of output where the marginal benefit of the last unit produced and consumed is equal to the marginal cost of that unit.

Specialization

The practice of producing a single good or service rather than producing multiple goods or services.

Terms of trade are:

The price of one good in terms of another

Terms of Trade

The price of one good, service, or resource in terms of another.

Entrepreneurial Ability

The talent or ability to combine land, labor, and capital to produce goods and services.

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

The terms associated with the trade

Capital

The tools, machinery, infrastructure, and knowledge used to produce goods and services.

Opportunity cost is:

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

The slope of the production possibilities frontier equals the ______ of the production of one good or service in terms of the other.

Trade-off and opportunity cost

If you continue producing when marginal benefit is less than marginal cost, you are

Wasting resources that would be better spent elsewhere