Chap. 3

Question 1

Production Process

Answer 1

Turns inputs into Consumable Outputs.

Question 2

Consumable Outputs

Answer 2

Goods and Services.

Question 3

What are the categories of Resources/ Inputs

Answer 3

> Natural Resources/ land- Tangible, but not produced by anyone.
Labor- Physical and Mental Talents, applied to production.
Capital- Produced means of production.
Entrepreneurship- Risk taking/ risk bearing and innovation.

Question 4

Technology

Answer 4

Is the way inputs are combined to produce outputs.

Question 5

Law Of Increasing Opportunity Cost

Answer 5

As more of one good is produced, the opportunity cost of producing a unit of that good rises, in terms of the other good which must be sacrificed.

Question 6

Economic Growth

Answer 6

An expansion of the economy’s productive capabilities.

Question 7

Human Capital

Answer 7

When individuals upgrade their labor by education and training.

Question 8

Invisible Hand

Answer 8

The idea that those who are just trying to help themselves often help others more than when they are actually trying to help others.

Question 9

(3) Income and Wealth Determinants

Answer 9

> Quantity of resources
Quality of resources
Freedom to use those resources.

Question 10

What did Adam Smith say about the wealth of a country?

Answer 10

???

Question 11

T/F/E: To be wealthy, we must first put our efforts toward consumption?

Answer 11

(FALSE) Before we can consume, we must create value.

Question 12

In what ways is value created?

Answer 12

Production of Trade.

Question 13

The Production Process…?

Answer 13

Inputs to get outputs.

Question 14

What are the characteristics of the resource called “Land”?

Answer 14

tangible, but not produced by anyone

Question 15

What are the characteristics of the resource called “Labor”

Answer 15

physical and mental talents, applied to production

Question 16

What are the characteristics of the resource called “Capital”

Answer 16

produced means of production

Question 17

What are the characteristics of the resource called “Entrepreneurship”

Answer 17

risk taking/risk bearing and innovation

Question 18

What are the prices of various resource categories?

Answer 18

> Natural Resources/land- Rent
Labor- Wage
Capital- Interest
Entrepreneurship- Profit

Question 19

In the Economy, what does the price system do?

Answer 19

Connect info. about preferences and resource scarcity and provides incentives for working together.

Question 20

In the Production Process, Who does Bastiat say are (NOT) Middlemen?

Answer 20

Bastiat says all are middlemen in the grand scheme of trade in the Economy.

Question 21

What does Bastiat say will control grain profits? What will control costs?

Answer 21

Competition will bid profits down, it will also give incentive to keep costs low.

Question 22

When new shipments of grain come to a country with varying degrees of famine, where does it go first?

Answer 22

To the place with the most need.

Question 23

What does Bastiat predict about the cost of grain as government….

Answer 23

???

Question 24

What would make someone think that middlemen add value?

Answer 24

Because value is measured by willingness to pay, and if they added no value, no one would pay them.

Question 25

T/F/E: Chickens around the world are equally productive, since the production process is the same everywhere?

Answer 25

(FALSE) : Chickens in the US produce 7 times more than chickens in developing countries.

Question 26

What is make work Fallacy?

Answer 26

The idea that jobs are valuable, whether or not the labor’s production adds value

Question 27

What are the 3 assumptions of the Production Possibilities Frontier model?

Answer 27

1) Only 2 goods are produced 2) using some fixed amount of resources 3) And a given technoology.

Question 28

The PPF would be a straight line if?

Answer 28

All resources were equally productive.

Question 29

What is the most likely shape of the PPF, Why?

Answer 29

???

Question 30

What principle is at the heart of Principle of Production Possibilities?

Answer 30

LAW OF OPTIMAL ARRANGEMENT (ch. 1)

Question 31

Which point on the PPF is the best?

Answer 31

(There is no logical way to find the “best” point)The PPF only shows possibilities, to find the ‘best’ we would need to know preferences for the different outputs produced which the PPF (Does Not Tell Us).

Question 32

How is the eventual point on the PPF chosen?

Answer 32

In {Market Economies} they are chosen in ‘Spontaneous Order’.
In {Authoritarian Economies} they are chosen by the Authoritarian decision makers or dictators.

Question 33

How could an Economy have Health Care that is too good?

Answer 33

Many goods have value, when more of one is produced something else must be sacrificed.

Question 34

Explain the Relevance of points beyond the points of PPF and inside the points of PPF

Answer 34

???

Question 35

What did Adam Smith mean when talking about Butchers, Bakers, and Brewers?

Answer 35

???

Question 36

What does Economic growth look like on the PPF? How does it occur?

Answer 36

???

Question 37

What does Adam Smith’s ‘Invisible Hand” do?

Answer 37

???

Question 38

The Incentive to Trade comes from what (3) Motivations?

Answer 38

People differ in tastes, people differ in abilities, and more highly populated markets give rise to better use of resources through specialization.

Question 39

Production possibilities frontier (PPF) model

Answer 39

is a simplified way of understanding the production tradeoffs that are made in an economy