chapter 2 economics

normative statement

1. Philosophers draw a distinction between positive statements, which describe the world as it is, and ___________________s, which describe how the world should be.

. the benefit to his grades from studying for an hour

10. Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is:

is a subjective valuation that can be determined only by the individual who chooses the action.

15. The opportunity cost of an action:

budget constraint

16. The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.

marginal analysis

17. Most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

A. choosing to spend one more hour studying economics because you think the improvement in your score on the next quiz will be worth the sacrifice of time.

18. Marginal thinking is best demonstrated by:

maximum amount that a consumer is willing to pay for the slice

19. The marginal benefit of a slice of pizza is the:

opportunity cost

2. Attending college is a case where the ________________ exceeds the monetary cost.

utility

20. The general pattern that consumption of the first few units of any good tends to bring a higher level of _______ to a person than consumption of later units is a common pattern.

sunk costs

21. The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options.

budget constraint

22. The model that economists use for illustrating the process of individual choice in a situation of scarcity is the _________________, sometimes also called the opportunity set, a diagram which shows what choices are possible.

diminishing marginal utility

27. The law of ____________________________ explains why people and societies rarely make all-or-nothing choices.

marginal utility

28. As a person receives more of a good, the _______________ from each additional unit of the good declines.

decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time

29. Which of the following would most likely shift the production possibilities curve inward?

production possibilities frontier

3. As depicted in _________________________________, it is necessary to give up some of one good to gain more of the other good.

budget constraint

30. The slope of the _________________ is determined by the relative price of the two goods, which is calculated by taking the price of one good and dividing it by the price of the other good.

sunk costs

32. The lesson of __________ is to forget about the money that's irretrievably gone and instead to focus on the marginal costs and benefits of future options.

utility

33. In deciding how many hours to work, Beulah will make a choice that maximizes her _______; that is, she will choose according to her preferences for leisure time and income.

opportunity set

34. The model that economists use for illustrating the process of individual choice in a situation of scarcity is the budget constraint, sometimes also called the _______________, a diagram which shows what choices are possible.

marginal anaylsis

35. Most real-world choices aren't about getting all of one thing or another, instead, most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

law of diminishing marginal utility

36. Economists refer to this pattern, the ___________________________________, which means that as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.

allocative efficiency

37. The choice on a production possibilities set that is socially preferred, or the choice on an individual's budget constraint that is personally preferred, will display _____________________.

because our unlimited wants exceed our limited resources

7. Why is there scarcity?

unlimited wants and limited resources

8. Scarcity exists because of:

it is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available.

9. Scarcity implies that:

opportunity cost

measures cost by what we give up or fofeit in exchange opportunity cost measure the value of the forgone alternative

31. In many cases, it is reasonable to refer to the ________________ as the price.

opportunity cost

utility

satisfaction usefulness or value one obtains from consuming goods and services

normative statment

statement which describes how the world should be

positive statement

statement which describes the world as it is

comparative advantage

when a country can produce a good at a lower cost in terms of other goods; or when a country has a lower opportunity cost of production

product efficiency

when it is impossible to produce more of one good without decreasing the quantity produced of another good

allocative efficiency

when the mix of goods produced represents the mix that society most desires

production possibilites frontiers

a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has avaibale

invisible hand

adam smiths concept that individuals self interested behavior can lead to positive social outcomes

opportunity set

all possible combinations of consumptions that someone can afford given the prices of goods and the individuals income

budget constraint

all possible consumption combinations of goods that someone can afford, given the prices of goods when all income is spent, the boundary of the opportunity set

law of diminishing returns

as we add additional increments of resources to producing a good or service the marginal benefits from those additional increments will decline

law of diminishing marginal utility

as we consume more of a good or service, the utility we get from additional units of the good or service tend to become smaller than what we received from earlier units

sunk cost

costs that we make in the past that we cannot recover

marginal analysis

examination of decisions on the margin meaning a little more or a little less from the status quo