Chapter 1: Introduction to Economics Flashcards
Economics is best defined as the study of:
choice in a world of scarcity
Your opportunity cost of going to a movie is
the total cash expenditure needed to go to the movie plus the value of your time
A marginal change is one that
incrementally alters an existing plan
Adam Smith’s phrase “invisible hand” refers to
the ability of free markets to reach desirable outcomes, despite the self-interest of market participants
Governments may intervene in a market economy in order to
protect property rights, correct a market failure due to externalities, and achieve a more equal distribution of income
A point inside the production possibilities frontier is
feasible, but not efficient
An economy produces hot dogs and hamburgers. If a discovery of the remarkable health benefits of hot dogs were to change consumers’ preferences, it would
move the economy along the production possibilities frontier
When two individuals produce efficiently and then make a mutually beneficial trade based on comparative advantage,
they both obtain consumption outside their production possibilities frontier
In an hour, Mateo can wash 2 cars or mow 1 lawn, and Tyler can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing?
Tyler in washing, neither in mowing
Once again, in an hour, Mateo can wash 2 cars or mow 1 lawn, and Tyler can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing?
Tyler in washing, Mateo in mowing
Which goods will a nation typically import?
those goods in which other nations have a comparative advantage
Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor, while producing a shirt takes 4 hours of labor.
China will export shirts, while the United States will export aircraft
