Macro Intro Learning Activity

The value of the next-best forgone alternative is the cost.

opportunity

Constant Opportunity Cost

A characteristic of production whereby the opportunity cost associated with increasing the production of one good or service, in terms of another, is constant at every level of production

increasing marginal cost

A condition in which the additional cost associated with each successive unit of an activity increases. Suppose it's late at night and you're studying for an exam you have early the next morning. You'll experience increasing marginal cost for each additional hour you spend studying because each hour of sleep lost to studying is more important than the previous hour.

circular flow model

A model that concisely describes how goods, services, resources, and money flow back and forth in an economy.

law of increasing opportunity cost

A principle in economics that holds that because some resources are better suited to producing one good or service than another, as the production of a good or service increases, the opportunity cost of each additional unit rises. Suppose a farmer has three kinds of land for growing apples: good, better, and best. As the farmer increases production, she'll use the best land first, and costs will be low. At some point, she will run out of the best land and will have to start using the better land, and costs will be a little higher. Once that land is used, she will have to use the good land, where costs are even higher. The law of increasing opportunity cost suggests that the more apples she produces, the higher the opportunity cost of producing apples will be because lower-quality/higher-cost land will need to be used as production expands.

Efficient allocation of resources

Allocation of resources in such a way that it is possible to increase the production of one good only by decreasing the production of another.

Resource

Any item, whether a gift of nature, the result of production, or the result of human effort, that is used to produce goods and services

The circular flow model shows how households and firms interact in two key markets: the ______ market and the ______ market.

Blank 1: resource, resources, factor, or factors Blank 2: product or products

Definitions in Context: Marginal Benefit and Marginal Cost

If you've ever supersized your meal at a fast-food restaurant, you determined that the marginal benefit of the additional fries and soft drink was greater than the marginal cost of upgrading your purchase.

_____ cost is most plainly visible when spending more money on one thing means that less money can be spent on another thing.

Opportunity

Marginal Benefit (MB)

The additional benefit received from the consumption of the next unit of a good or service

gains from trade

The benefit, or wealth, that accrues to a buyer or seller as a result of trading one good, service, or resource for another. The wealth, or additional well-being, created by trade does not have to be monetary.

Relative Scarcity

The comparison of the scarcity of one good, service, or resource to that of another. A major problem faced by developing countries is the relative scarcity of drinkable water as compared to water in general.

Optimization

The idea that people make choices in order to maximize the overall benefit, or utility, of an action subject to its cost; people will engage in an activity as long as the marginal benefit of an activity is greater than or equal to its marginal cost. If MB≥MC, do it. If MB<MC, don't do it.

Evaluate the following statement: "I love ice cream. But I've eaten so much ice cream today, I can't possible eat another cup."

The marginal benefit of eating ice cream is falling.

Specialization

The practice of using available resources to produce a single good or service rather than producing multiple goods or services. You and your roommate agree to a specialization of chores—you will specialize in ironing shirts while your roommate specializes in vacuuming the floor. With this plan, it is likely that you each will spend less time doing household chores.

terms of trade

The price of one good, service, or resource in terms of another. Roommates Alex and Victor decide that Alex will wash five of Victor's shirts in exchange for Victor vacuuming the apartment once. The five pressed shirts for one vacuumed apartment are the terms

allocation

The process of assigning a good, service, or resource to one use instead of another. At a local town council, people debated a proposal that would change the allocation of public space for recreational use by demolishing a skating park and building an arboretum.

Capital

The tools, machinery, infrastructure, and knowledge used to produce goods and services. Capital is sometimes divided into "physical" and "human" capital. Physical capital refers to tangible items that are created to increase productivity; human capital refers to the knowledge and skills that people acquire in order to increase productivity.

Production Possibilities Frontier (PPF)

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology The red line in the graph above is the production possibilities frontier. It is possible, but inefficient, to produce combinations of the two products to the left of the PPF (the shaded green area). It is impossible to produce combinations to the right of the PPF.

A production possibilities frontier that illustrates a 1-for-1 trade off between goods is drawn as:

a straight, downward-sloping line.

production possibilities schedule

a table that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology

Marginal Cost (MC)

additional coast associated with one more unit of an activity

Land

all natural resources used to produce goods and services sometimes referred to as "gifts of nature"

Individuals and businesses must choose between the different uses for their available resources. This is called ______ resources and is due to the concept of ______.

allocating; scarcity

inefficient allocation of resources

allocation of resources in such a way that it is possible to increase the production of one good without decreasing the production of another

A producer has a(n) ____ advantage in the production of a good or a service if his or her relative opportunity cost of production is lower than the opportunity cost of other producers. (Enter one word in the blank.)

comparative

If you are relatively better at something, then you are said to have a(n) _____ advantage in that activity.

comparative

As long as there are differences in opportunity costs, there are ______ advantages and there will be potential for trade to make both parties better off.

comparative or comparitive

Gains from trade can be measured by:

comparing the levels of consumption available before and after the trade

marginal decision making

comparison of additional benefits of a choice against the additional costs it would bring, without considering related benefits and costs of past choices When you decide to turn off the bedroom light on your way to the kitchen so that you can save a little money on your electric bill, you're engaging in marginal decision making. Similarly, when you decide after studying for 3 hours that another hour of sleep is more beneficial to you than a fourth hour studying, that's marginal decision making.

Scarcity

condition that results from the inability of limited resources to satisfy unlimited wants Because your time is subject to scarcity, you have to decide whether you're better off studying for your economics exam or going to a movie with friends. Similarly, due to the scarcity of natural resources, we can't have all the housing and all the forests we may want because cutting down a tree to build a house means less forest.

The simple model of production assumes that the opportunity cost of production is:

constant

The quality of a(n) ____ model can be measured by how well it reflects reality and whether it gives us insights that can be used in the real world.

economic

Graphing the information in the production possibilities schedule produces the production possibilities:

frontier

The benefit - or wealth - that accrues to a buyer or a seller as a result of trading one good - service - or resource for another is the:

gains from trade.

The circular flow model shows how:

households and firms interact in two key markets.

Economics is about:

how people make choices in a world of scarcity.

As the amount of an activity increases, its marginal cost:

increases

When you decide - after studying for three hours - that another hour of sleep is more beneficial to you than a fourth hour of studying, you are engaging in:

marginal decision making

When you decide to turn off the bedroom light on your way to the kitchen so that you can save a little money on your electric bill, you are engaging in:

marginal decision making.

self-interest

one's own personal gain the idea that people choose to do things that intrest them

The terms of trade that are beneficial to both parties are prices that lie between both the parties' ______ costs.

opportunity

The line (or curve) that represents the combinations of the two goods produced on the production possibilities frontier is a boundary between output levels that are and output levels that are unattainable.

possible, attainable, achievable, or obtainable

In the circular flow model, the two markets are the factor market and the:

product market.

A useful way to visually represent the data in a production possibilities schedule is by means of a graph called a(n) _______ ________ frontier.

production possibilities

Self interest, marginal decisions, and optimization all form the basis of ______ decision making.

rational

Self-interest, marginal decision making, and optimization form the basis for:

rational decision making.

Because the world is characterized by scarcity, people must allocate the limited ____ at their disposal among many competing uses.

resources

The points on the production possibilities frontier show how we allocate our scarce _____ to the production of two different goods or services.

resources

Economics is the study of how individuals and societies allocate _______ resources among many competing uses.

scarce/limited/finite

Economics studies how individuals and businesses make decisions in a world of ______ resources.

scarce/limlited/scarcity/finite

Due to the ______ of natural resources, we cannot have all the housing and all the forests we may want.

scarcity

_______ means that resources are limited.

scarcity

In the circular flow model, households _____ resources and _____ products.

sell; buy

A strong economic model allows us to analyze the economic events of the world by:

simplfying a very complex economic world

Because of differences in opportunity costs, individuals and businesses

specialize in the production of the good for which they wield a comparative advantage.

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

Optimal level of output

the level of output at which the marginal benefit of the last unit produced and consumed is equal to the marginal cost of that unit MB = MC

Entrepreneurial Ability

the talent or ability to combine land, labor, and capital to produce goods and services Entrepreneurial ability is different from human capital in that it primarily involves assuming risk and organizing resources into a productive process.

opportunity cost

the value of the next-best forgone alternative the value of the opportunity that you gave yp when you chose one activity or opportunity instead of another opportunity cost exist bc of scarcity You just received $100 for your birthday. Your most preferred way of spending the money is either to buy a new jacket or to buy a ticket to a concert. If you purchase the jacket, the opportunity cost of the jacket is the entertainment value of the concert that you didn't attend. Even though you were given the $100, the jacket isn't free because you had to give up the concert in order to acquire it

Individuals and countries specialize because the opportunity cost of producing goods and services:

varies

decreasing marginal benefit

when each additional unit of the activity yields less benefit than the previous unit The negative relationship between the marginal benefit associated with the use of a good or service and the quantity consumed; the more of a good or service that is consumed, in a given period of time, the lower the marginal benefit associated with each additional unit. Suppose it's late at night and you're studying for an exam you have early the next morning. You'll experience decreasing marginal benefit with each additional hour you spend studying because each hour of sleep lost to studying is more important than the previous hour.