Chapter 2

Question 1

Scarcity

Answer 1

When ingredients for producing things that are desirable are insufficient to satisfy all wants.

Question 2

What is the most basic concept in all of economics?

Answer 2

Scarcity- we never have enough of everything to satisfy all desires.

Question 3

Production

Answer 3

Any activity that results in the conversion of resources into products used in consumption.

Question 4

What are the examples of resources?

Answer 4

Land, labour, physical capital, human capital, entrepreneurship.

Question 5

Goods

Answer 5

All things that individuals derive satisfaction from

Question 6

Economic Goods

Answer 6

Scarce goods, for which the quantity demanded exceeds the quantity supplied.

Question 7

Services

Answer 7

Mental or physical labour or assistance purchased by consumers.

Question 8

Wants

Answer 8

Goods and services on which we place positive value.

Question 9

Opportunity Cost

Answer 9

The highest valued, next best alternative that must be sacrificed to obtain something, or satisfy a want. The highest ranked alternative. Opportunity cost is when you choose to do something, you lose something else.

Question 10

Production Possibilities Curve (PPC)

Answer 10

Graphical analysis of opportunity cost. Represents all possible combinations of maximum outputs that could be produced.

Question 11

Production Possibility Assumptions

Answer 11

1. Resources are fully employed
2. Production takes place over a specific time period
3. Resource inputs are fixed for the time period
4. Technology does not change over the time period

Question 12

Productive Efficiency

Answer 12

Producing the maximum output with given technology and resources

Question 13

Inefficient Point

Answer 13

Any point below the PPC at which the use of resources is not generating the maximum possible output

Question 14

Law of Increasing Additional Cost

Answer 14

As society attempts to produce more of a good, the opportunity cost of additional units generally increases.

Question 15

Specialization and the PPC

Answer 15

More bowing of the PPC indicates specialization.

Question 16

Economic growth and the PPC

Answer 16

Outward shift of the PPC. Economic growth increases the PPC. It takes time and doesn’t happen immediately.

Question 17

Consumption

Answer 17

The use of goods and services for personal satisfaction.

Question 18

Consumer Goods

Answer 18

Goods produced for personal satisfaction.

Question 19

Capital Goods

Answer 19

Goods used to produce other goods.

Question 20

Increases of capital goods does what?

Answer 20

Increases economic growth. In the future, economic systems can then produce more consumer goods.

Question 21

Specialization

Answer 21

Organization of economic activity among individuals and regions.

Question 22

What does specialization lead to?

Answer 22

Greater productivity.

Question 23

Comparative Advantage

Answer 23

The ability to produce a good or service at a lower opportunity cost compared to other producers.

Question 24

Absolute Advantage

Answer 24

The ability to produce more units of a good or service using a given quantity of labour or resource. Producing the same, using fewer units.

Question 25

Division of Labour

Answer 25

Segregation of resources into specific tasks.

Question 26

What happens when nations specialize and have a competitive advantage?

Answer 26

1. Trade leads to improving economic efficiency
2. Output increases
3. Standard of living and income rises