Week 2: Fundamentals (Principles of Economics)

individuals and business must choose between the different uses for their available resources. this is called __________ _________ resources and is due to the concept of _________

-allocating -scarcity

when the marginal ______ equals marginal ______, there is no incentive to either increase or decrease the level of the activity performed

-benefit -cost

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

-how people make choices -scarcity affect the cost and benefits of choices

when people specialize according to their comparative advantages:

-overall production rises -the opportunity cost is reduced

ration decision making is based on three assumptions:

-self-interest -optimization -marginal decision making

rational decision making is based on 3 assumptions:

-self-interest -optimization -marginal decision making

the slope of production possibilities frontier equals the _____________________ of the production of one good or service in terms of the other

-trade-off -opportunity cost

the term "scarcity" describes the fact that people's _______ wants can't be completely satisfied with ________ resources

-unlimited -limited

Oscar can produce 16 lbs coffee and 0 lbs bananas or 64 lbs bananas and 0 lbs coffee. what is the opportunity cost of producing 1 lb of bananas?

1 banana = 1/4 coffee

Julia can produce 20 lbs coffee and 0 lbs bananas or 40 lbs bananas and 0 lbs coffee. what is the opportunity cost of producing 1 lb of coffee?

1/2 coffee = 1 banana

Kale has a 20-sqft land. every sq. ft. can produce 5 tomatoes or 3 lettuce heads. how many heads of lettuce can Kale produce with all net land? how many tomatoes can Kale produce with all her land? what is Kale's opportunity cost of producing one head of lettuce? what is Kale's opportunity cost of producing one tomato?

60 lettuce heads (20*3=60) 100 tomatoes (20*5=100) 1.67 (5 tomatoes/3 lettuce heads=1.6667) 0.60 (3 lettuce heads/5 tomatoes= 0.60)

who has the comparative advantage in coffee production?

Julia

who has the comparative advantage in bananas production?

Oscar

if an activity is performed where MB > MC, there is:

a net gain to the company

marginal benefit

additional benefit associated with one more unit of an activity

combinations lying _______ the production possibilities frontier are impossible to produce with the current resources and technology

beyond

a producer has a _____________ advantage in the production of a good or a service if his or her relative opportunity cost of production is 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

when PPF is a straight line, the opportunity cost of one good or service is assumed to be

constant

when production is characterized by ___________ opportunity costs, the resulting production possibilities frontier will be a straight line

constent

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

efficient

in the circular flow model, ________ and ___________ interact in the resource market and the product market

firms and households

when resources are _________, increasing the production of one goos causes a decrease in the production of the other

fixed

graph the information in the production possibilities schedule produces the production possibilities ____________

frontier

if the price is too ________ producers will be eager to sell, but buyers won't buy service or resource for another is:

gains from trade

the circular flow model shows how:

households and firms interact in two key markets: 1) the resources market and 2) product market

economics is about:

how people make choices in a world of scarcity

the quality of an economic model can be measured by

how well it reflects reality and whether it gives us insights that can be used in the real world

suppose a firm spends $10,000 to train its employees on a new, company-wide software program that has already purchased and intends to adopt in the following month. in the case, the $10,000 is considered _______ _______

human capital

specialization causes individuals and nations to rely on one another and

increase the degree of independence among them

As the amount of an activity increases, its marginal cost ___________

increases

in the real world, opportunity cost of production _______________ as production increases

increases

specialization causes individuals and nations to rely on one another and increase the degree of ____________ between them

independence

other names for resources

inputs and factors of production

the effect of an extension is unemployment benefits on the unemployment rate in the country is:

macroeconomics

the effect of an increase in the inflation rate on households' decision to save or spend money is:

macroeconomics

an economy is better off when it stops producing outputs at the point where:

marginal benefit = marginal cost

process of making choices in increments by evaluating the additional or marginal benefit against the additional or marginal cost of an action is called:

marginal decision making

the effect of a harsh growing season on the price of corn is:

microeconomics

the effect of a tax credit for purchasing new energy-compliant appliances on the use of electricity is:

microeconomics

_________ cost is mostly plainly visible when spending more money on one thing means that less money can be spent on another thing

opportunity

if the terms of trade are the same as your _______ cost, you will receive no gains from the trade

opportunity

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

the value of the next-best, forgone alternative is the ______________ cost

opportunity

the terms of trade that beneficial to both parties are those terms, or prices, that are between two parties' _________ __________

opportunity cost

combinations inside the production possible frontier are:

possible but inefficient

when people trade, producers can achieve something they can't without trade. this only with trade is it

possible to operate outside the production possibilities frontier

comparative advantage refers to the ability to:

produce a good or service at a lower opportunity cost than others

in the circular flow model, the two markets are the factor market and the:

product market

according to the circular flow diagram, when a firm receives money for a good or service it sold a household, the interaction occurs in the _________ market

production

self interest, marginal decisions and optimization all form the basis of ____________ decision making

rational

tomatoes represent a small subset of food, so tomatoes are:

relatively more scarce than food in general

according to the circular flow diagram, when the household receives a wage for supplying a firm with labor, the interaction occurs in the __________ market

resource

______________ are also called factors of production since they are transformed into output during the production process

resources

anything that is used to produce a good or a service, whether its provided by nature or is manufactured, is a ________

resources

if you decide to produce at a level where marginal cost exceeds marginal benefit (MC > MB) there is a waste of ______________ that could be better used somewhere else

resources

in the circular flow model households can obtain the income they need to purchase the producers for consumption only by selling _________

resources

in the circular flow model, firms can produce the output they sell to households only by buying ____________ from households

resources

because resources are _____, they must be allocates between competing uses

scarce

a major problem faced by developing countries is the relative _______ of drinkable water

scarcity

economics studies how individuals and businesses make decisions in a world of ______

scarcity

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

self

the _________ of the production possibilities frontier equal the trade-off of the production of one good or service in terns of the other

slope

a potential risk of specialization is:

susceptibility to market fluctuations

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

terms of trade refers to

the price of one good or service in terms of another

the marginal cost of an activity can be found by calculating the change in:

total costs as the level of the activity increases by 1 unit

whether or not a good or service is traded depends on largely on the terms of

trade

a society's ability to produce needed goods and services is permanetly reduced is it

uses resources too quickly

individuals and countries specialize because the opportunity cost of producing good and services:

varies

if you continue producing when MB < MC

your wasting resources that would be better spent elsewhere (would be inefficient to produce goods)