macroeconomics chapter 2

fixed resources

The quantities and qualities of all resource inputs remain unchanged during the time period but do allow for an economy to shift any resources from the production of one output to the production of another output

production possibilities curve

a curve that shows the maximum combinations of two outputs an economy can produce in a given period of time with its available resources and technology

what would be the least likely to cause the production possibilities curve to shift to the right

a decrease in unemployment

what is an example of an organization using marginal analysis

a government official considering the effect an increase in military goods production will have on the production of consumer goods

a nation can accelerate its economic growth by

adding to its stock of capital

a production possibilities curve shows the various combinations of two outputs that...

an economy can produce

marginal analysis

an examination of the effects of additions to or subtractions from a current situation

why would an economy be operating inside its production possibilities curve (PPC)

because of unemployment or underemployment of labor, perhaps due to discrimination against employing workers of a certain race or gender

someone notices that sunspot activity is high just to prior to recessions and concludes that sunspots cause recessions, this person has...

confused with association and causation

the subject of economics is primarily the study of...

decision making because of the problem of scarcity

the ability of an economy to produce greater levels of output per time period is called...

economic growth

if the price of a textbook rises and students purchase fewer textbooks, an economic model can show a cause and effect relationship only if which of the following conditions hold

everything else is constant

what will happen if a production possibilities curve (PPC) has capital on the vertical axis and consumer goods on the horizontal axis

greater emphasis on production of capital today leads to greater outward shifts in the PPC, this increasing the wealth of people in the future

what will likely produce the greatest growth in the production possibilities curve (PPC)

greater production of capital goods than what is needed to replace worn out capital

what is not true about a production possibilities curve, the curve...

indicates which production points will be chosen

the principle that the opportunity cost increase as the production of one output expands is the...

law of increasing opportunity costs

economists believe that scarcity forces everyone to...

make choices

when building a model, an economist must...

make simplifying assumptions

a rational decision maker always chooses an option for which marginal benefit is __________ marginal cost

more than

what will happen if an economy produces various combinations of food and shelter along a production possibilities curve (PPC), first increase the production of shelter along the PPC, then continue to shift more and more production to shelter

opportunity cost will increase because as more and more shelter is produced, labor and capital that is highly productive at producing food is being shifted to shelter production and so more and more food is being given up to produce a unit of shelter

marginal analysis means evaluating ___________ changes from a current situation

positive or negative

what is true about the production possibilities curve when a technological progress occurs

shifts outward to the right

what will happen if an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), suppose a technological innovation resulted in a new, higher yielding crop that generated more bushels of grain for a given set of land, labor, and capital resources, this innovation did no affect the productivity of shelter production

the PPC will rotate outward along the food axis, but will not shift on the shelter axis

suppose an economy can produce various combination of fish and bread, if more people with strong fishing skills became employed in the economy, how would the production possibilities curve (PPC) change

the PPC would shift outward on the fish axis, but would not change on the bread axis

economic growth

the ability of the economy to produce greater levels of output, represented by an outward shift of its production possibilities curve

investment

the accumulation of capital such as factories, machines, and inventories used to produce goods and services

in the study of economics, investment means...

the accumulation of capital that is used to produce goods and services

opportunity cost

the best alternative sacrificed for a chosen alternative

technology

the body of knowledge applied to how goods are produced

fully employment resources

the economy operates with all its factors of production fully employed and producing the greatest output possible without waste or mismanagement

law of increasing opportunity cost

the principle that the opportunity cost increases as production of one output expands

what characteristics do combinations of goods outside the production possibilities curve (PPC) have

they are not attainable given our existing stock of resources and technology

suppose the alternative uses of an hour of your time in the evening, ranked from best to worst - study economics - watch two half-hour sitcoms - playing video games - jog around town what is the opportunity cost of studying economics for one hour given this information

watching 2 half-hour sitcoms

what will happen if an economy can produce various combinations of food and shelter along a production possibilities curve (PPC), then if we increase the production of shelter along the PPC

we must decrease the production of food, this foregone food production represents the opportunity cost of the increase in shelter

an outward shift of an economy's production possibilities curve is caused by...

- entrepreneurship - an increase in labor - an advance in technology

describe the three fundamental economic questions

- what to produce - how to produce - for whom to produce

technology unchanged

Holding existing technology fixed creates limits, or constraints, on the amounts and types of goods any economy can produce