Ch 1 & 2

Question 1

inflation

Answer 1

an increase in the general level of prices

Question 2

incentives

Answer 2

rewards and penalties that motivate behavior

Question 3

opportunity cost

Answer 3

a choice is the value of the opportunities lost

Question 4

BIG IDEAS 1-4

Answer 4

1) incentives matter
2) good institutions align self-interest with social interest
3) trade-offs are everywhere
4) thinking on the margin

Question 5

BIG IDEAS 5-7

Answer 5

5) the power of trade
6) the importance of wealth and economic growth
7) institutions matter

Question 6

absolute advantage

Answer 6

the ability to produce the same good using fewer inputs than another producer

Question 7

production possibilities frontier

Answer 7

all of the combinations of goods that a country can produce given its productivity and supply of inputs

Question 8

comparative advantage

Answer 8

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

Question 9

factors that shift demand (1-3)

Answer 9

1) change price of complementary goods
2) change price of substitute goods
3) change in consumer income/wealth