Econ Chapter 2

The slope of a line is zero when it is:

horizontal. (When a line is horizontal, its rise is always zero, and so its slope is always zero)

opportunity cost

the loss of potential gain from other alternatives when one alternative is chosen. the value of what you give up to do what you do

Countries gain from trade by producing:

the goods they can produce at the lowest opportunity cost (The principle that the lowest cost rules is the basis for the gains from trade because countries that produce a good at the lowest cost have a comparative advantage in the production of that good)

Because you can get more of one good only by giving up some of another good, the shape of a production possibility curve is:

downward-sloping. (The negative slope of a production possibility curve represents the opportunity cost concept—you get more of one benefit only if you get less of another benefit)

Trade based on comparative advantage benefits:

Trade based on comparative advantage increases the efficiency of production, which results in more goods available to consumers.

Which of the following is an example of the law of one price in action?

Wages in India are lower than wages in the United States, and so firms move their call centers to India. This tends to raise wages in India and depress wages in the United States. The law of one price states that the wages of workers in one country will not differ significantly from the wages of workers in another institutionally similar country. If wages do differ, production will shift toward the lower-wage country, tending to raise wages in that country and lower wages in the other. Eventually wages will equalize.

marginal opportunity cost

effect of producing additional units of a product on the costs of a business, as well as the opportunities the companies give up to produce more of a product

marginal thinking

equires decision-makers to evaluate whether the benefit of one more unit of something is greater than its cost

comparative advantage

the ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity (a resource or set of resources can produce output at a lower opportunity cost)

If there is a direct relationship between two variables, the graph relating those two variables will be:

upward-sloping. (If there is a direct relationship between two variables, as one increases, so will the other, making the graph of them upward-sloping)