Chapter 2

Question 1

What is absolute value?

Answer 1

Absolute value refers to one producer’s ability to make more than another producer with the same quantity of resources.

Question 2

What are capital goods?

Answer 2

Capital goods help produce other valuable goods and services in the future.

Question 3

What does ceteris paribus mean?

Answer 3

Ceteris paribus means “other things being equal” or “all else equal” and is use to build economic models. It allows economists to examine a change in one variable while holding everything else constant.

Question 4

What are consumer goods?

Answer 4

Consumer goods are produced for present consumption.

Question 5

What are endogenous factors?

Answer 5

Endogenous factors are the variables that are inside a model.

Question 6

What are exogenous factors?

Answer 6

Exogenous factors are the variables that are outside a model.

Question 7

What is an investment?

Answer 7

Investment is the process of using resources to create or buy new capital.

Question 8

What does the law of increasing opportunity cost state?

Answer 8

The law of increasing opportunity cost states that the opportunity cost of producing a good rises as a society produces more of it.

Question 9

What is long run?

Answer 9

Long run is a period of time when consumers have time to fully adjust to market conditions. In the long run, we make decisions that effect our wants, needs, and limitations over a long time horizon.

Question 10

What is a normative statement?

Answer 10

A normative statement is an opinion that cannot be tested or validated; it describes “what ought to be.”

Question 11

What is a positive statement?

Answer 11

A positive statement can be tested and validated; it describes “what is”.

Question 12

What is PPF and what does it stand for?

Answer 12

PPF is Production Possibilities Frontier. PPF is a model that illustrates the combinations of outputs a society can produce if all of its resources are being used efficiently.

Question 13

What is short run?

Answer 13

Short run is a period of time when consumers can partially adjust their behavior. In the short run, we can make decisions that reflect our immediate or short-term wants, needs, or limitations.

Question 14

What is specialization?

Answer 14

Specialization is the limiting of one’s work to a particular area.

Question 15

What is a positive economic statement? Give one example.

Question 16

What is a normative economic statement? Give one example.

Question 17

Is it important to build completely realistic economic models?