Business Unit 2

Question 1

allocative efficiency

Answer 1

The provision of the right amount of goods and services, taking into account consumers’ preferences, the production possibilities provided by technology, and the scarcity (and hence price) of each of the production inputs used.

Question 2

capital

Answer 2

the machines, factories, and infrastructure used to produce output

Question 3

circ flow model

Answer 3

An economic model showing the interactions that occur in an economy between its two primary decision makers: households and businesses.

Question 4

comparative advantage

Answer 4

An economic principle, used most in the theory of international trade, which states that a country should specialize in producing those goods where its advantage in productivity and costs, relative to its own productivity and costs in producing other goods, is greatest.

Question 5

constraints

Answer 5

The resource limitations that scarcity places on production.

Question 6

demand

Answer 6

the amount of a particular product or service that a consumer is willing and able to buy at a specific price.

Question 7

diminishing marginal utility

Answer 7

The tendency for the marginal utility associated with each additional incremental unit of the consumption of a good or service to diminish, as the consumer consumes a larger amount of the good or service.

Question 8

An economic concept stating that using increasing amounts of a particular input (e.g., labor hours) in production beyond a certain level increases output less and less.

Answer 8

diminishing returns

Question 9

The production of the desired result with the minimum amount of effort, expense, or waste while accounting for the costs and benefits associated with the desired result.

Answer 9

economic efficiency

Question 10

The degree to which consumer demand of a particular product or service changes when the price of that product or service changes.

Answer 10

elasticity of demand

Question 11

The combination of vision, initiative, skill, ingenuity, and risk taking needed to launch and sustain a business venture.

Answer 11

entrepreneurship

Question 12

The marketplace in which factors of production are bought and sold by households and businesses.

Answer 12

factor market

Question 13

The economic resources needed to produce goods and services. The term is generally used to refer to the very broad categories of land, labor, and capital. It has been suggested by many economists that some other broad categories (notably entrepreneurship, information, and know-how) should also be included as factors of production.

Answer 13

factors of production

Question 14

The change in a consumer’s demand and consumption caused by lower prices.

Answer 14

income effect

Question 15

The basic facilities and installations needed for the functioning of a community or society, such as transportation or communications systems, and water and power lines.

Answer 15

infrastructure

Question 16

The self-correcting characteristic of a market economy where the interaction of supply and demand generally tends to bring the system back to equilibrium.

Answer 16

invisible hand

Question 17

All human time, effort, and talent that goes into producing goods and services.

Answer 17

labor

Question 18

Areas of ground used for production (e.g., for farming or manufacturing), together with natural resources found on or under the ground that are used to produce goods and services.

Answer 18

land

Question 19

The amount of additional production of a good (or service) that results from using one more unit of an input (e.g., hours of labor).

Answer 19

marginal physical product (MPP)

Question 20

The amount of benefit or satisfaction received from each additional instance of consumption of a good or a service.

Answer 20

marginal utility

Question 21

The value of the next-best alternative, which was given up when the preferred alternative was chosen.

Answer 21

opportunity cost

Question 22

The point where the quantity supplied and the amount demanded are equal at the currently prevailing price.

Answer 22

price equilibrium (market clearing price)

Question 23

The marketplace in which goods and services are bought and sold by households and businesses.

Answer 23

product market

Question 24

The manufacture of the desired output with the minimum amount of effort, expense, or waste while taking account of the costs and benefits associated with a particular choice of what outputs to produce and what inputs to use in producing them.

Answer 24

production efficiency

Question 25

A graph that shows the different amounts of two goods that an individual or a group can efficiently produce in a certain interval of time with limited productive resources when producing with optimal technical efficiency.

Answer 25

production possibility frontier

Question 26

The situation that exists when there are not enough resources to meet human wants and needs.

Answer 26

scarcity

Question 27

Acting on or making economic decisions meant to benefit oneself rather than others.

Answer 27

self-interest

Question 28

The quantity of a product demanded at the currently prevailing price is greater than the amount supplied.

Answer 28

shortage

Question 29

Concentration of economic activity on the production of a few particular goods or services.

Answer 29

specialization

Question 30

The change in demand for a particular good or service when its price rises that is attributable to the availability of alternative goods and services that are cheaper or that represent an attractive alternative for other reasons.

Answer 30

substitution effect

Question 31

The amount of goods or services that a producer is willing and able to provide at a specific price.

Answer 31

supply

Question 32

The quantity of a product supplied that is greater than the amount demanded at the currently prevailing price.

Answer 32

surplus

Question 33

The production of the desired result using the smallest input of resources (i.e., getting the most out of something).

Answer 33

technical efficiency

Question 34

The alternative given up when making a choice.

Answer 34

trade-offs

Question 35

The benefit or satisfaction gained from the use of a good or a service.

Answer 35

utility