Econ ch 2

what events would create economic growth, that is, shift the production possibilities frontier outward

-an increase in technology that affects the production of both goods -an increase in the available labor -an increase in the available natural resources

what role do private property rights play in the working of a market system?

-encourage a significant number of people to be willing to risk funds of investing them in business -encourage firms to spend money on research and development

why are independent courts important for a well-functioning economy? independence is necessary for courts:

-to make their decisions free of influence from people with powerful political connections -to make their decisions free of influence from other parts of the government -to make their decisions based on the law -to make their decisions free of intimidation by criminal gangs

we don't make decisions based on ___ we make them based on ______

absolute, comparative

2 companies have the same production possibilities frontiers but company 1 devotes 5% of its resources with capital goods over 10 years. company 2 devotes 30% which company is likely to experience more rapid economic growth in the future?

company 2

what is the basis for trade

comparative advantage

T or F: if you and your neighbor both grow oranges and grapefruits and you are better at picking both oranges and grapefruits, there can be no advantage to you in specializing in growing only one type of fruit and trading with your neighbors for the other

false

what does increasing marginal opportunity cost mean

increasing the production of a good requires larger and larger decrease in the production of another good

do the thing in which you give up the ___

least

what is a free market

one where the government does not control the production of goods and services

what is ppf

production possibilities frontier

what do property rights have to do with developing such markets

property rights make it more likely that investments will be made

many states are cutting aid to colleges, w students being asked to pick up a bigger part of the tab of higher education which of the following would do the most to enable you to cope with higher expenses without impairing your progress toward a degree

reducing your consumption of goods and services not essential to your education

why do we trade?

so we can consume beyond our production possibility frontier

one of the great benefits of trade is

that it makes it possible for society to become better off by increasing its consumption

what is comparative advantage

the ability to produce a good or service at a low opportunity cost than other producers

what is absolute advantage

the ability to produce more of a good or service than competitors using the same amount of resources

preparing for a next day exam over the course of an evening (and possibly into the wee hours of test day) poses increasing costs since

the longer you choose to study will result in an increase in the number and value of foregone activities

which is the opportunity cost of spending more money to find a cure for heart disease

the reduction in funding for research to cure other diseases

what are private property rights

the rights individuals and firms have to be exclusive use of tangible, physical property and intellectual property

how should policymakers determine the amount of money that should be allocated for research curing heart disease? they should base their decision on

whether the last dollar devoted to research on heart disease results in more benefit than the last dollar spent on research for curing other diseases

how can a country gain from specialization and trade

a country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services

the Scottish philosopher Adam smith argued in 1776 that

prices would do a better job of coordinating the activities of buyers and sellers than guilds could

the principle of increasing marginal opportunity costs states that the more resources devoted to any activity the _____ the payoff to devoting additional resources to that activity

smaller

Entrepreneur

someone who operates a business, bringing together the factors of production

what is a capital good

something that makes other goods

why would such markets be important for a country that is hoping to raise the standard of living of its residents

strong, innovative markets result in more economic growth

in what ways does a free market economy differ from a centrally planned economy? unlike a free market economy

they have extensive government controls

herbert hoover argued that the US should only import those products that could not be produced here. do you believe that this would be a good policy

this is not a good policy because it does not necessarily result in countries producing those goos for high they have a comparative advantage

is it possible for a country to have a comparative advantage in producing a good without also having an absolute advantage? a country without an absolute advantage in producing a good...

will have a comparative advantage if it has a lower opportunity cost of producing that good

what are the implications of this idea for the shape of the production possibilities frontier

the production possibilities frontier will be bowed outward