Macro Intro
_____ cost is most plainly visible when spending more money on one thing means that less money can be spent on another thing
Opportunity
Beneficial terms of trade are the terms - or prices - that are between the two parties ' opportunity costs .
True
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
For an entire economy , the production possibilities frontier is going to be :
bowed out because we have different resources with different opportunity costs
A model that concisely describes how goods , services , resources , and money flow back and forth in an economy is the :
circular flow model .
As the amount of an activity increases , its marginal benefit :
decreases
In the circular flow model , ____ must buy resources in order to produce the output they will sell to households
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
Graphing the information in the production possibilities schedule produces the production possibilities :
frontier .
Suppose a firm spends $ 10,000 to train its employees on a new , company - wide software program that it has already purchased and intends to adopt in the following month . In this case , the knowledge gained through the training is considered :
human capital
In the real world , the opportunity cost of production _____ as production increases
increases
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
If the price is too ____ producers will not be eager to sell , but buyers will be willing and able to buy .
low
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 .
If the terms of trade are the same as your opportunity cost , you will receive
no gains from the trade
The law of increasing opportunity costs exists because
not all resources are well - suited for all production .
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
Spending more money on one thing means that you have less money to spend on something else . This is called _____ cost
opportunity
The _____ cost of producing a good or a service can be found by solving for the cost of one good in terms of another .
opportunity
When the marginal benefit equals the marginal cost , that stable level is referred to as an _____ level
optimal
Combinations lying _____ the production possibilities frontier are impossible to produce with the current resources and technology
outside
Money spent by a firm on machinery that is designed to improve future productivity is called :
physical capital
Tools - machinery and infrastructure are classified under the resource category of
physical capital
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
Self interest , marginal decisions , and optimization all form the basis of _____ decision making
rational
Self - interest , marginal decision making , and optimization form the basis for :
rational decision making
Physical capital
refers to tangible items that are created to increase productivity
human capital
refers to the knowledge and skills that people acquire in order to increase productivity .
Drinkable water is _______ water in general .
relatively more scarce than
In the circular flow model , households can obtain the income they need to purchase the products for consumption only by selling
resources
The opportunity cost of producing a good for one producer may be different from that of another because of differences in available _____ and _____
resources ; technology
Because resources are _____ they must be allocated between competing uses .
scarce
Due to the _____ of natural resources , we cannot have all the housing and all the forests we may want
scarcity
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
For an entire economy , the production possibilities frontier is going to be bowed out because :
some resources are better suited for producing some goods or services than others
In the real world , the opportunity cost increases as production increases , because :
some resources are better suited for producing some goods or services than others
Because of differences in opportunity costs , individuals and businesses
specialize in the production of the good for which they wield a comparative advantage .
A potential risk of specialization is :
susceptibility to market fluctuations .
Marginal cost is :
the additional cost associated with one more unit of an activity
Opportunity cost is defined as :
the value of the opportunity that you give up when you choose one activity instead of another
Because resources are scarce
they must be allocated between competing uses .
Whether or not a good or service is traded depends largely on the terms of
trade
Economists use the phrase ______ to refer to the positive gains enjoyed by both buyers and sellers when they trade .
" trade creates wealth "
Constant Opportunity Costs
A characteristic of production whereby the opportunity cost associated with increasing the production of one good or service , in terms of another , is constant at every level of production .
Increasing Marginal Cost
A condition in which the additional cost associated with each successive unit of an activity increases .
Scarcity
A condition that results from the inability of limited resources to satisfy unlimited wants . Because your time is subject to scarcity , you have to decide whether you're better off studying for your economics exam or going to a movie with friends . Similarly , due to the scarcity of natural resources , we can't have all the housing and all the forests we may want because cutting down tree to build a house means less forest .
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 the production combinations that are both attainable and efficient .
Circular Flow Model
A model that concisely describes how goods , services , resources , and money flow back and forth in an economy .
Law of Increasing Opportunity Cost
A principle in economics that holds that because 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 additional unit rises . Suppose a farmer has three kinds of land for growing apples : good , better , and best . As the farmer increases production , she'll use the best land first , and costs will be low . At some point , she will run out of the best land and will have to start using the better land , and costs will be a little higher . Once that land is used , she will have to use the good land , where costs are even higher . The law of increasing opportunity cost suggests that the more apples she produces , the higher the opportunity cost of producing apples will be because lower - quality / higher - cost land will need to be used as production expands .
Production Possibilities Schedule
A table that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology .
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
Efficient Allocation of Resources
Allocation of resources in such a way that it 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
Resource
Any item , whether a gift of nature , the result of production , or the result of human effort , that is used to produce goods and services .
_____ is the study of how individuals and institutions make decisions in a world of scarce resources .
Economics
_____ is the study of how individuals and societies allocate scarce resources among many competing uses and how this decision - making affects the economy at large
Economics
According to the circular flow diagram , which two groups interact in the resources market ?
Households and firms
____ is / are also called factors of production since they are transformed into output during the production process .
Resources
_____ means that resources are limited .
Scarcity
_____ in trade causes individuals and nations to become interdependent .
Specialization
Comparative Advantage
The ability to produce a good or service at a lower relative opportunity cost than that of another producer . If in the time it takes you to iron one shirt , you could wash 10 dishes , but in the time it takes your roommate to iron one shirt , she could wash 20 dishes , you have the comparative advantage in ironing shirts : You give up only 10 dishes , while she gives up 20 .
Marginal Benefit ( MB )
The additional benefit associated with one more unit of an activity .
Marginal Cost ( MC )
The additional cost associated with one more unit of an activity
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 .
Relative Scarcity
The comparison of the scarcity of one good , service , or resource to that of another . A major problem faced by developing countries is the relative scarcity of drinkable water as compared to water in general .
Self - interest
The idea that people choose to do the things that interest them
Optimization
The idea that people make choices in order to maximize the overall benefit , or utility , of an action subject to its cost ; people will engage in an activity as long as the marginal benefit of an activity is greater than or equal to its marginal cost . If MB >= MC , do it . If MB < MC , don't do it .
Optimal Level of Output
The level of output at which the marginal benefit of the last unit produced and consumed is equal to the marginal cost of that unit . MB = MC
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
Decreasing Marginal Benefit
The negative relationship between the marginal benefit associated with the use of a good or service and the quantity consumed ; the more of a good or service that is consumed , in a given period of time , the lower the marginal benefit associated with each additional unit .
Specialization
The practice of using available resources to produce a single good or service rather than producing multiple goods or services . You and your roommate agree to a specialization of chores - you will specialize in ironing shirts while your roommate specializes in vacuuming the floor . With this plan , it is likely that you each will spend less time doing household chores .
Terms of Trade
The price of one good , service , or resource in terms of another . Roommates Alex and Victor decide that Alex will wash five of Victor's shirts in exchange for Victor vacuuming the apartment once . The five pressed shirts for one vacuumed apartment are the terms of trade .
Allocation
The process of assigning a good , service , or resource to one use instead of another . At a local town council , people debated a proposal that would change the allocation of public space for recreational use by demolishing a skating park and building an arboretum .
Marginal Decision Making
The process of making choices in increments by evaluating the additional , or marginal , benefit against the additional or marginal cost of an action . 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're engaging in marginal decision making . Similarly , when you decide after studying for 3 hours that another hour of sleep is more beneficial to you than a fourth hour studying , that's marginal decision making .
Macroeconomics
The study of the economy at the large - scale level , examining total output , the price level , and other aggregate measures of the economy .
Microeconomics
The study of the economy at the small - scale level , examining individuals and specific markets
Entrepreneurial Ability
The talent or ability to combine land , labor , and capital to produce goods and services . Entrepreneurial ability is different from human capital in that it primarily involves assuming risk and organizing resources into a productive process .
Capital
The tools , machinery , infrastructure , and knowledge used to produce goods and services . Capital is sometimes divided into " physical " and " human " capital
Opportunity Cost
The value of the next - best forgone alternative ; the value of the opportunity that you gave up when you chose one activity , or opportunity , instead of another . Opportunity costs exist because of scarcity . You just received $ 100 for your birthday . Your most preferred way of spending the money is either to buy a new jacket or to buy a ticket to a concert . If you purchase the jacket , the opportunity cost of the jacket is the entertainment value of the concert that you didn't attend . Even though you were given the $ 100 , the jacket isn't free because you had to give up the concert in order to acquire it .
Producing a good or a service at a lower opportunity cost gives the producer :
a comparative advantage in the market
Individuals and businesses must choose between the different uses for their available resources . This is called _____ resources and is due to the concept of ______
allocating ; scarcity
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
If you are relatively " " better at something , you have a ( n ) _____ advantage .
comparative
If you are relatively better at something , then you are said to have a ( n ) _____ advantage in that activity .
comparative
Specialization in a particular good is based on _____ advantage on the good .
comparative
The simple model of production assumes that the opportunity cost of production is :
constant
When production is characterized by _____ opportunity costs , the resulting production possibilities frontier will be a straight line .
constant
When you see a production possibilities frontier ( PPF ) drawn as a straight line , the opportunity cost of one good or service ( in terms of units of the other good or service that must be given up ) is assumed to be :
constant
Specialization causes individuals and nations to rely on one another and increases the :
degree of interdependence between them
The wealth or additional well - being - created by trade
does not have to be monetary
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 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 .
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 , ______ can obtain the income they need to buy the products they want to consume only by selling their resources
households
The two parties involved in the simple circular flow model are
households and businesses
The law of _____ opportunity cost says 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
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 .
All natural resources used in production are classified under the resource category called
land
An economy should continue producing a good or a service so long as :
marginal benefit exceeds 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
Focusing production entirely on one good or service leaves you susceptible to changes in the
market or economy
The terms of trade that are beneficial to both parties are prices that lie between both the parties' _____ costs.
opportunity
The value of the next - best forgone alternative is the _____ cost
opportunity
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
Combinations inside the production possibilities frontier are :
possible but inefficient
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 .
The circular flow model shows how households and firms interact in two key markets : the ____ market and the ____ market.
resource ; product
Combinations of output along the production possibilities frontier are the result of making efficient use of all available
resources
Economics studies how individuals and businesses make decisions in a world of _____ resources
scarce
Economics is the study of how individuals and societies allocate :
scarce resources among many competing users
Since Chevrolet Camaros represent a small subset of all automobiles in existence , they are relatively more :
scarce than automobiles in general .
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 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 .
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 .
