BUSS1040

Question 1

Key points to address in an economy (x3)

Answer 1

• what to produce
• how to produce it
• who should get what is made

Question 2

opportunity costs are

Answer 2

explicit cost (involve direct payment to pursue choice) + implicit cost (missed opportunity)

Question 3

Opportunity costs do not include

Answer 3

Sunk costs, i.e. costs that have already been incurred

Question 4

Marginal Benefit

Answer 4

benefit of an extra unity consumed by an individual

Question 5

Marginal Cost

Answer 5

Additional cost of buying another unit

Question 6

Ceteris Paribus

Answer 6

is used to isolate the impact of one factor by examining the impact of one change at a time

Question 7

Production Possibility Frontier Graphs

Answer 7

Graphs the output that an individual can produce with a set of resources

Question 8

What can shift a PPF Graph

Answer 8

A technology shock will boost production of a good and shift it along an axis (see notes for graphs)

Question 9

What is the slope of a PPF Graph

Answer 9

the Opportunity cost of producing an additional unit of a good in terms of the other
Depends on countries productive resources and current state of tech

Question 10

Pareto Improving

Answer 10

Both parties can consume outside of their PPF

Question 11

Absolute Advantage

Answer 11

Party A produces more output than Party B

Question 12

Comparative Advantage

Answer 12

Party A produces a good at a lower opportunity cost than Party B

Question 13

Accounting Profits

Answer 13

Revenues minus all explicit costs

Question 14

Economic profits

Answer 14

Revenues minus total opportunity costs

Question 15

What is the short run

Answer 15

the period of time during which at least one of the factors of production is fixed

Question 16

What is the long run

Answer 16

when all factors of production are variable

Question 17

What does a production function show?

Answer 17

the relationship between quantity of inputs used and maximum quantity of output produced

Question 18

Marginal Product

Answer 18

Is the change in output when one more input is used, it is the slope of production function.

Question 19

Diminishing Marginal Product

Answer 19

when marginal product becomes progressively smaller, common in the short run as there is fixed input of some kind which creates a capacity constraint.

Question 20

Returns to Scale

Answer 20

refers to output quantity changes when there is a proportional change in quantity of all inputs

Question 21

Constant returns to Scale

Answer 21

When an increase in inputs (capital and labour) cause the same proportional increase in output.

Question 22

Increasing returns to Scale

Answer 22

When an increase in inputs leads to bigger proportional increase in output.

Question 23

Decreasing returns to Scale

Answer 23

This occurs when an increase in all inputs (labour/capital) leads to a less than proportional increase in output.

Question 24

What is a cost function

Answer 24

an equation that links the quantity of output with associated production cost

Question 25

Marginal Cost

Answer 25

the increase in total cost from an extra unit of output

Question 26

Economies of Scale

Answer 26

when long-run ave. costs decrease with output

Question 27

Diseconomies of Scale

Answer 27

when long-run ave. costs increase with output

Question 28

When can there be no comparative advantage

Answer 28

when both have the same opportunity cost