Chapter 2

Question 1

Invisible Hand

Answer 1

coordination mechanism, suggested by eighteenth-century economic thinker Adam Smith, in which the global production line is a natural outcome of people everywhere acting in their own self-interest to improve their own lives

Question 2

Production Possibilities Frontier (PPF)

Answer 2

a line or curve that shows all possible combinations of outputs that can be produced using all available resources

aX + bY = Total resources
Y = -(a/b)X + (Total resources/b)

Question 3

Efficient Points

Answer 3

combinations of production possibilities that squeeze the most output possible from all available resources; ON the PPF

Question 4

Inefficient Points

Answer 4

combinations of production possibilities that do not utilize all available resources; within the PFF

Question 5

Absolute Advantage

Answer 5

the ability to produce more of a good or service than others can with a given amount of resources

Question 6

Comparative Advantage

Answer 6

the ability to produce a good or service at a lower opportunity cost than others;

no producer has a comparative advantage at everything

Question 7

Specialization

Answer 7

the practice of spending all of your time and resources producing a particular good

Question 8

Gains from Trade

Answer 8

the improvement in outcome that occurs when producers specialize and exchange goods and services