Microeconomics Chapter 2 Review

Opportunity Set

All possible combinations of consumption that someone can afford given the prices of goods and the individual's 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

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.

The amount of gas being produced is equal to the amount of gas consumers want.

Allocative efficiency

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 _____________________.

Allocative efficiency

Give an example of Productive Ineffiency

Anything below the production possibilities frontier curve is an example of productive inefficiency because it is not at it's max efficient.

Law of Diminishing Marginal Utility

As a person receives more of a good, the additional (or marginal) utility from each additional unit of the good declines. In other words, the first slice of pizza brings more satisfaction than the sixth.

Law of Diminishing Returns

As additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline.

Due to its climate, India has a lower opportunity cost for producing rice than the United States.

Comparative advantage

Marginal Analysis

Comparing the benefits and costs of choosing a little more or a little less of a good.

Sunk Costs

Costs that were made in the past and cannot be recovered, should not affect the current decision.

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

Diminishing marginal utility

Productive Efficiency

Given the available inputs and technology, it is impossible to produce more of one good without decreasing the quantity that is produced of another good.

Mario's restaurant has a budget for advertising each month. Each additional ad brings in less new customers than the previous ad. This is an example of:

Law of Diminishing Marginal Utility

Which factor corresponds to the curving slope of a production possibilities frontier (PPF) graph?

Law of Diminishing Returns

Reba is deciding whether she should eat an additional half of a sandwich. This is an example of:

Marginal analysis

The marginal benefit of a slice of pizza is the:

Maximum amount that a consumer is willing to pay for the slice.

Sandra took an expensive cruise. In order to pay for it, she stopped her gym membership. This is an example of:

Opportunity Cost

Jean Paul is a second year university architecture student on a very tight budget. Although a scholarship covers his tuition, books, dormitory and meals, he must budget tightly each week for his school supplies, entertainment, and clothing. Jean Paul's weekly choice of allotting his budget to a varying combination of school supplies, entertainment, clothing, and other specialty purchases such as the drafting table represent his _________

Opportunity Set

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.

Opportunity Set

His roommate is offering him a drafting table for a remarkably low price and allowing him to make payments over 4 weeks, but this will pinch his budget. However, having a drafting table in his room will save him the time and energy of using the drafting table of a friend who lives off campus, and it will give him more flexibility for completing his assignments. What is Jean Paul considering in the act of adjusting his budget to accommodate the purchase of the drafting table?

Opportunity cost

Scarcity implies that:

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

Scarcity exists because of:

unlimited wants and limited resources.

Which are normative statements? A. If the manufacturing plant can add a swing shift, production could increase. B. Health care should be available for everyone in the United States because it is the right thing to do. C. The expansion of the shopping mall will attract more shoppers. D. Although the benefits of the bus tunnel do not immediately exceed the costs, it can be used for a future subway when growth dictates it. E. The development of a new freeway is not feasible, given the existing number of commuters.

B. Health care should be available for everyone in the United States because it is the right thing to do. D. Although the benefits of the bus tunnel do not immediately exceed the costs, it can be used for a future subway when growth dictates it.

Which scenario exemplifies the concept of the invisible hand? A. The combination of approving the new museum and postponing expansion of the airport has been dictated by the city's voters. B. When Carl purchases local products because they are cheaper, he is not thinking of the advantage it has on his area's manufacturing sector. C. The city cannot make improvements to its infrastructure without making cuts in another area. D. Susan feels that despite the economic hardship it will mean to her, all of her children should go to college to achieve their very best.

B. When Carl purchases local products because they are cheaper, he is not thinking of the advantage it has on his area's manufacturing sector.

Why is there scarcity?

Because our unlimited wants exceed our limited resources

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.

Budget constraint

Budget constraint is to the individual, as ________ is to society.

Production Possibilities Frontier

A country is producing the maximum amount of education given its fixed amount of resources to produce education. This is an example of:

Productive efficiency

Law of diminishing returns

Sally has determined that hiring a fifth worker will increase her production of roses in her greenhouse less than the cost of hiring the worker.

Utility

Satisfaction, usefulness, or value one obtains from consuming goods and services

Which are factors that both budget constraint diagrams and production possibilities frontier diagrams highlight?

Scarcity, tradeoffs, efficiency, and opportunity costs.

Positive Statements

Statements that describe the world as it is.

Normative Statements

Statements that describe the world as it should be.

Elijah's car needs expensive repairs. When Elijah was deciding whether to do them, he remembered that the car had cost him $20,000. This is an example of:

Sunk Costs

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.

Sunk Costs

Allocative Efficiency

The particular mix of goods a society produces represents the combination that society most desires.

Opportunity costs involve what factor besides price?

Time

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.

Utility

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.

Utility

Opportunity Cost

What must be given up to obtain something that is desired.

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.

Production Possibilities Frontier (PPF)

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