Chap 1 and 2

How is capital used by economists?

"capital" as used by economists refers to real (or physical) capital— actual manufactured products used in the production process— not money or financial capital

What does a PPF Production possibilities Frontier do?

A production possibilities frontier (PPF) depicts the different combinations of goods that a fully employed economy can produce, given its available resources and current technology (both assumed fixed in the short run).

What is absolute advantage?

Absolute advantage is when one country can produce more of a good than another country.

Taiwan is a small mountainous island with 23 million inhabitants, little arable land, and few natural resources, while Nigeria is a much larger country with 7 times the population, 40 times more arable land, and tremendous deposits of oil. Given Nigeria's sizable resource advantage, why is Nigeria's total annual production less than that of Taiwan's?

Although Nigeria has significantly more natural resources and labor (two important factors of production) than Taiwan, these resources alone do not guarantee a higher ability to produce goods and services. Factors of production also include physical capital (machinery), human capital (education), and technology (research and development), all of which Taiwan has in great abundance. Thus, despite the lack of land, labor, and natural resources, Taiwan is able to use its resources efficiently and expand its production possibilities well beyond those of Nigeria.

Who decides whether to buy or not in capitalist or Market economies? and who decides to employ the resources and what resources?

Based on prices, consumers decide whether to buy or not, and firms decide how to employ their resources and what production technology to use.

Because production on the frontier represents the maximum output attainable when all resources are fully employed, reallocating production from one product to another involves opportunity costs : The output of one product must be reduced to get the added output of the other. The more of one product that is desired, the higher its opportunity cost because of diminishing returns and the unsuitability of some resources for producing some products.

Because production on the frontier represents the maximum output attainable when all resources are fully employed, reallocating production from one product to another involves opportunity costs : The output of one product must be reduced to get the added output of the other. The more of one product that is desired, the higher its opportunity cost because of diminishing returns and the unsuitability of some resources for producing some products.

What are the foundations of making an economic decision?

Benefits, costs, trade-offs, and regulation: These are the foundations for making an economic decision.

What are large decisions called in a communistic or socialist economy?

Big sweeping decisions for the economy, often called "five-year plans," are centrally made and focus productive resources on these priorities.

What does capital include?

Capital Includes manufactured products such as tractors, welding equipment, and computers that are used to produce other goods and services. The payment for capital is interest.

What is Capital accumulation?

Capital accumulation is increasing the capital used throughout the economy, which is usually brought about by investment, this shifts the PPF product possibility Frontier outwards.

Capital earns________?

Capital earns interest

Why do economists always rely on models and data for assumptions?

Economic conditions are always changing.

Economic insights lead to economic _______, but these ______ must then be tested

Economic insights lead to economic theories, but these theories must then be tested

Economic insights lead to ______, but these _______must then be tested.

Economic insights lead to economic theories, but these theories must then be tested.

Economics is all about how people respond to __________.

Economics is all about how people respond to incentives.

What is payment of land called for economists?

Economists refer to the payment to land as rent.

Entrepreneurs combine ________, ________, and _______ to produce goods and services

Entrepreneurs combine land, labor, and capital to produce goods and services

What do Entrepeneurs do?

Entrepreneurs combine land, labor, and capital to produce goods and services, and they assume the risks absorb the risk of being in business, including the risk of bankruptcy and other liabilities associated with doing business.

What is improving human capital?

Improving human capital means people are more productive,resulting in higher wages, a high standard of living, and expanded PPF for society.

What is investment in human capital?

Investment in human capital is education,on the job training, and other professional trading.

Macroeconomics has its own terms and topics, such as __________ ___________, ___________, and ___________.

Macroeconomics has its own terms and topics, such as business cycles, recession, and unemployment.

What does macroeconomics look at?

Macroeconomics looks at policies that increase economic growth, the impact of government spending and taxation, the effect of monetary policy on the economy, and inflation.

What type of issues does macroeconomics look at?

Macroeconomics, on the other hand, focuses on the broader issues we face as a nation.

Why do markets typically lead to an efficient outcome for buyers and sellers?

Markets usually lead to an efficient outcome because they are structured so that they will be successful. Also if a market struggles the government can come in and help it.

Name policies and laws that microeconomics includes

Microeconomics also extends to such topics as labor laws, environmental policy, and health care policy.

Who makes decisions in microeconomics?

Microeconomics deals with decision making by individuals, businesses, and industries.

Microeconomics looks at how markets are _____________.

Microeconomics looks at how markets are structured.

What is the key method of economics?

Model building

What is much of economic analysis directed towards?

Much of economic analysis is directed toward ensuring that the most efficient outcomes result from public policy

What is comparative advantage ?

One country has a lower opportunity cost than another

What is the principle mechanism for communicating information in the system?

Product prices are the principal mechanism for communicating information in the system.

When does productive efficiency occur?

Production efficiency occurs when goods are produced at the lowest possible cost, and allocative efficiency.

Production levels ____and on the _______ are possible, but those on the _______curve are unattainable.

Production levels inside and on the frontier are possible, but those outside the curve are unattainable.

What are productive resources?

Productive resources include land (land and natural resources), labor (mental and physical talents of people), capital (manufactured products used to produce other products), and entrepreneurial ability (the combining of the other factors to produce products and assume the risk of the business).

What is the incentive to spend four years of one's life and tens of thousands of dollars to earn a college degree?

The incentive to go to college is to specialize in a field and reduce scarcity. It also can add to your happiness by increasing your money or other things.

Best friend is having his big 21st birthday party but you normally stay at home. What is the opportunity cost of going to the party?

The opportunity would be going to the birthday party. The cost would be not studying, having to buy a present, or getting drunk and going to work hungover.

In contrasting equity and efficiency, why do high-tech firms seem to treat their employees better (better wages, benefits, working environments, vacations, etc.) compared to how landscaping or fast-food franchises treat their employees? Is this fair? Is it efficient?

They treat their employees better because they tend to be more scarce employees who one would imagine specialize in a certain field

What is thinking at the margin?

Thinking at the margin entails thinking about how you can improve an operation (or increase profits) by adding to your existing product line or reducing costs.

price for admission, which includes unlimited roller coaster rides for the day. Some people attempt to ride the roller coasters as often as possible in order to maximize the value of their admission. Why is riding a roller coaster at an amusement park over and over to "get your money's worth" not considered thinking on the margin?

This is not considered thinking on the margin because you are not adding to the existing product line and this is not rational thiniking

McDonald's introduced a premium blend of coffee that sells for more than its standard coffee. How does this represent thinking at the margin?

This represent thinking on the margin because McDonalds adds a new product to its line to increase profits

What is wrong with the statement "Economics is everything to do with money"?

This statement is incorrect because economics is not just about money. It is also about peoples well being and making decisions.

What is Voluntary trade?

Voluntary trade is a positive-sum game: Both parties to a transaction score positive gains.

We use simple _________ and __________analysis to understand both individual markets and the general economy as a whole.

We use simple supply and demand analysis to understand both individual markets and the general economy as a whole.

What are three questions that each society must answer?

What goods and services are to be produced? How are these goods and services to be produced? Who will receive these goods and services?

Does your going to college have anything to do with expanding choices or reducing scarcity? Explain.

Yes it does have to do with both things. Going to college expands choices because it gives you the knowledge to be able to specialize and get a job in different fields. This does also reduce scarcity by helping you gain the ability to contribute to a certain field of work.And could possibly get you more money to buy products

Comparative advantage explains all trade:

between individuals as well as between countries.

What is Ceteris paribus?

ceteris paribus assumption: "Holding all other things equal." That means we will hold some important variables constant.

What is the goal of economic growth fostered by?

economic growth is fostered by policies set by government, including fiscal policy and monetary policy.

economics The study of how_____________,_____________ , and ___________ make decisions to allocate limited resources to many competing wants.

economics The study of how individuals, firms, and society make decisions to allocate limited resources to many competing wants.

What is efficiency and What is the chief focus of efficiency?

efficiency How well resources are used and allocated. Do people get the goods and services they want at the lowest possible resource cost? This is the chief focus of efficiency.

What are incentives?

incentives The factors that motivate individuals and firms to make decisions in their best interest.

What does labor include and what is the payment called?

labor Includes the mental and physical talents of individuals who produce products and services. The payment to labor is wages.

What does land include and what is its payment referred to as?

land Includes natural resources such as mineral deposits, oil, natural gas, water, and land in the usual sense of the word. The payment for land used as a resource is rent.

What do measures of economic growth include?

measures of economic growth include average household income, quality of education, infrastructure development, improvement in technology and innovation, environmental sustainability, and poverty reduction.

What is a normative question?

normative question A question whose answer is based on societal beliefs on what should or should not take place.

What is opportunity cost?

opportunity cost The value of the next best alternative; what you give up to do something or purchase something.

What is a positive question?

positive question A question that can be answered using available information or facts.

What are the factors of production?

production The process of converting resources (factors of production)— land, labor, capital, and entrepreneurial ability— into goods and services.

What is scarcity?

scarcity Our unlimited wants clash with limited resources, leading to scarcity. Everyone (rich and poor) faces scarcity because, at a minimum, our time on earth is limited. Economics focuses on the allocation of scarce resources to satisfy unlimited wants as fully as possible.

Give a simple definition on economics

simple definition, economics is about making choices. Economics studies how individuals, firms, and societies make decisions to maximize their well-being given limitations.

What is stylizing?

stylized, we mean that economists boil down facts to their basic relevant elements and use assumptions to develop a stylized (simple) model to analyze the issue.

understand that how _____________________are used is as important as the amount of __________ available

understand that how resources are used is as important as the amount of resources available