Econ Test #1

gains from Trade Analysis Terms:

- Absolute advantage = one producer can simply produce more than their competitor - Comparative advantage = one producer can produce a good at LOWER OPPORTUNITY COST as compared to their competitor

Production Possibilities and Opportunity Cost

- a move from C to D increases butter production by 1 ton... from 2 to 3 - gun production decreases from 12 units to 9 units, a decrease of 3 units

what is economic growth?

- the ability of an economy to produce greater levels of output - an outward shift of the production possibilities curve

what is the law of increasing opportunity cost?

- the principle that the opportunity cost increases as production of one output increases - the fact that opportunity cost is increasing along the PPC

what is production possibilities curve?

a curve that shows the maximum combination of two outputs that can be produced within an economy (assuming certain conditions are present)

what happens when we move between two efficient points?

a movement between any two efficient points means that more of one product can be produced ONLY if less of the other product is produced. we call this "tradeoff" OPPORTUNITY COST

when one producer can simply produce more than their competitor, we say that the producer has a(n)

absolute advantage

scarcity --> choice --> opportunity cost

anytime you make a choice, you experience opportunity cost

when one producer can produce a good a lower opportunity cost as compared to their competitor, we say that the producer has a(n)

comparative advantage

when one variable increases and this causes another variable to increase, we say the two variables have a(n) _____________ relationship

direct

if a line has an upward slope, we say the relationship between the two variables is ____________ or _____________

direct or positive

when two variables move or change in the same direction, they have a ________________ relationship

direct/positive

simplified descriptions of reality used to understand the relationship between variables are called...

economic models

regarding the PPC model, a point on the curve is called a(n) ________________ point

efficient

list the two reasons for market failure:

externalities market power

conditions assumed for PPC (productions possibilities curve)

fixed resources = same number throughout our analysis fully employed resources = 100% perfection

as production gets higher, then generally speaking, a _____________ standard of living exists for a nation's residences

higher

moving from point E to Z -->

increase in deficiency

moving from point Z to E -->

increase in efficiency

regarding the PPC model, a point inside the curve is said to be _______________

inefficient

"points" of the PPC: inside points =

inefficient = attainable (can produce less than max amount, but that creates inefficacy)

when one variable increases and this causes another variable to decrease, we say the two variables have a(n)

inverse

if a line has a downward slope, we say the relationship between the two variables is _____________ or _______________

inverse or negative

the outside temperature and the number of clothing items worn are likely to exhibit a _________________ relationship

inverse/negative

when two variables move or change in opposite directions, they have a ________________ relationship

inverse/negative

list the 4 categories of factors of promotion:

land labor capital entrepreneurship

the brand of economics that focuses on the whole or overall economy is called...

macro

"points" of the PPC: points on the curve =

maximum combinations that can be produced (called EFFICIENT POINTS)

the branch of economics that focuses on individual units is called...

micro

using opinions to validate a claim is operating in the realm of _____________ economics

normative

when you give up one alternative for another alternative, we call this concept

opportunity cost

using facts to validate a claim is operating in the realm of _____________ economics

positive

the outside temperature and the number of people who go to the beach are likely to exhibit a __________________ relationship

positive/direct

economics is the study of how society, firms, and individuals manage __________ resources

scarce

one of the central questions in economics is dealing with

scarcity

when human wants and needs exceed the available amount, we call this...

scarcity

what is opportunity cost?

the best alternative sacrificed for a chose alternative

regarding the PPC model, a point outside the curve is said to be ___________________

unattainable

"points" of the PPC: outside points =

unattainable (not enough resources to get there)

technological advance --> economic growth

when the entire curve shifts to the right