Basic Economic Concepts

Question 1

what we give up to obtain something that’s desired

Answer 1

opportunity cost

Question 2

all the opportunities for spending within a budget

Answer 2

opportunity set

Question 3

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

Answer 3

marginal analysis

Question 4

the first few units of any good tends to bring a higher level of utility to a person than consumption of later units

Answer 4

law of diminishing marginal utility

Question 5

costs that were incurred in the
past and cannot be recovered

Answer 5

sunk costs ( should not affect current decision)

Question 6

opportunity costs an economy faces in the production of two goods

Answer 6

production possibilities frontier (PPF)

Question 7

points along the PPF curve

Answer 7

efficient point of production

Question 8

points on the PPF curve, not along the curve

Answer 8

inefficient point of production

Question 9

shifts in PPF curve comes from shifts in

Answer 9

available resources or technology

Question 10

if one good is affected more than another on the PPF curve, a (blank blank) occurs

Answer 10

bias shift

Question 11

as additional increments of resources are added to a certain purpose, the marginal benefit from those additional increments will decline

Answer 11

law of diminishing returns

Question 12

if a country currently produces a combination of two goods inside its production possibilities curve, the country can produce less/more of both goods with existing resources

Answer 12

more

Question 13

produce all the goods we need/want to consume ourselves

Answer 13

economic self-sufficiency

Question 14

produce one good and have a comparative advantage in the trade with others for what we want

Answer 14

specialization and trade

Question 15

gains from trade

Answer 15

we can consume more while working the same amount

Question 16

opportunity cost of one item

Answer 16

divide both items by the number of that one item produced in a day, oc= resulting cost of the alternate item being given up

Question 17

comparative advantage determined by comparing the (blank blank) of each agent

Answer 17

opportunity cost

Question 18

(blank blank) determines comparative advantage and thus specialization

Answer 18

opportunity cost

Question 19

agent with lower opportunity cost in producing the good will have a (blank blank) in its production

Answer 19

comparative advantage

Question 20

as long as opportunity costs (blank) between two agents, there will be room to gain from trade

Answer 20

differ

Question 21

if one agent uses fewer resources to produce a good it has an (blank blank)

Answer 21

absolute advantage

Question 22

Three elements of an economic system

Answer 22

production, resource allocation, exchange/distribution of goods and services

Question 23

ownership and distribution of a good/service is determined by

Answer 23

property rights

Question 24

four components of property rights

Answer 24

1. right to use, 2. right to earn income, 3. right to transfer, 4. rights to enforce property rights

Question 25

when the mix of goods being produced represents the mix that society most desires

Answer 25

allocative efficiency

Question 26

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

Answer 26

budget constraint

Question 27

statement which describes the world as it is

Answer 27

positive statement

Question 28

statement which describes how the world should be

Answer 28

normative statement

Question 29

an economic system with private ownership and planned (government) allocation is a

Answer 29

command capitalism system

Question 30

an economic system with planned (government) ownership and private allocations is a

Answer 30

market socialism system

Question 31

if ownership in an economic system is private, it’s a form of (blank)

Answer 31

capitalism

Question 32

if ownership in an economic system is planned (government), it’s a form of

Answer 32

socialism