Chapter 2

Question 1

The ability of an economy to produce goods and services is determined by

Answer 1

its factors of production, including labor, natural resources, physical capital, human capital, and entrepreneurship

Question 2

Production Possibilities curve

Answer 2

Illustrates the principle of opp cost for an entire economy. An economy has a fixed amount of resources. If the resources are fully employed, an increase in the production of wheat comes at the expense of steel

Question 3

Marginal Principle

Answer 3

Based on a comparison of the marginal benefits and marginal costs of a particular activity

Question 4

Marginal benefit

Answer 4

The additional benefit resulting from a small increase in some activity

Question 5

Marginal cost

Answer 5

the additional cost resulting from a small increase in some activity

Question 6

Principle of diminishing returns

Answer 6

Suppose output is produces with 2 or more inputs, and we increase one input while holding the other input fixed. Beyond some point-point of diminshing returns-output will increase at a decreasing rate

Question 7

Real-Nominal principle

Answer 7

What matters to people is the real value of money or income-its purchasing power-not its “face” value

Question 8

Opportunity Cost

Answer 8

states that the opportunity cost of something is what you sacrifice to get it. Opportunity costs in production are generally increasing, and thus, the production possibilities curve is bowed outward.