ECON-201 Ch2
production possibilities curve
A curve that shows the possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used.
The opportunity cost of a college degree includes the:
A. goods that a student cannot purchase because of spending on books, tuition, food, and housing and the foregone income that could have been earned while in college. B. the costs of food, housing, books, tuition that a student could have purchased. C. the cost of college, the foregone income while in college, and the inability to go to another college. (D.) goods that a student cannot purchase because of spending on books and tuition and the foregone income that could have been earned while in college.
The production possibilities curve illustrates the notion of opportunity cost because
A. points inside the production possibilities curve are inefficient. (B.) as more of one good is produced, less of the other can be produced. C. points outside the production possibilities curve are unattainable. D. if there are more resources, the curve will shift.
Principal of Voluntary Exchange
a voluntary exchange between two people makes both people better off
Marginal Principle
increase the level of an activity as long as its marginal benefit exceeds marginal cost. Choose the level at which the marginal benefit equals the marginal cost.
Principal of Diminishing Returns
suppose outpost is produced with two or more inputs, and we increase one input while holding the other input or inputs fixed. beyond some point- called the point of diminishing returns- output will increase at a decreasing rate
real value
the value of an amount of money in terms of what it can buy
opportunity cost
what you give up to get something else
When using the principle of opportunity cost to explore the cost of military spending, the policy question is
(A.) whether the benefits of the war exceed the opportunity cost of war. B. which side is likely to win the war and how will that affect foreign policy. C. how much will the war cost, and who is likely to win. D. will it require that a military draft be used.
Real-Nominal Principle
What matters to people is the real value of money or income—its purchasing power—not its "face" value.
marginal benefit
the additional benefit resulting from a small increase in some activity
marginal cost
the additional cost resulting from a small increase in some activity
nominal value
the face value of an amount of money
principal of oppurtunity cost
the opportunity cost of something is what you sacrificed to get it.