Chapter 1B

Question 1

Low-Hanging Fruit Principle

Answer 1

In the process of increasing production of any good, one first employs those resources with the lowest opportunity costs. Once these resources are exhausted, it is then viable to turn to resources with higher opportunity costs.

Question 2

Main factors driving economic growth

Answer 2

• increase in infrastructure (i.e. factories and equipment)
• increase in population (i.e. labour force)
• increase and knowledge and technology

Question 3

What does a country’s welfare depend on?

Answer 3

its consumption of goods

Question 4

Consumption Possibility Curve

Answer 4

represents all the possible combination of two goods that agents in the economy can consume
International trade definition: represents all the possible combination of two goods that an economy can feasibly consume when it’s open to international trade

Question 5

What happens if a country is a closed economy?

Answer 5

The PPC and CPC will be the same because agents must consume whatever they produce.

Question 6

Why is CPC usually greater than PPC in an open economy?

Answer 6

Part of what domestic agents produce can be traded for other goods which relieve restrictions on consumption.

Question 7

Changes in international price can change the CPC or PPC?

Answer 7

CPC

Question 8

Define preferences

Answer 8

Needs and wants of an economy