Chapter 2

Question 1

Scarcity

Answer 1

A situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants at a zero price.

Question 2

Production

Answer 2

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

Question 3

Land

Answer 3

The natural resources that are available from nature. Land as a resource includes location, original fertility and mineral deposits, topography, climate, water, and vegetation.

Question 4

Labor

Answer 4

Productive contributions of humans who work.

Question 5

Physical Capital

Answer 5

All manufactured resources, including buildings, equipment, machines, and improvements to land that are used for production.

Question 6

Human Capital

Answer 6

The accumulated training and education of workers.

Question 7

Entrepreneurship

Answer 7

The component of human resources that performs the functions of raising capital, organizing, managing, and assembling other factors of production, making basic business policy decisions, and taking risks.

Question 8

Goods

Answer 8

All things from which individuals derive satisfaction or happiness.

Question 9

Economic Goods

Answer 9

Goods that are scarce, for which the quantity demanded exceeds the quantity supplied at a zero price.

Question 10

Services

Answer 10

Mental or physical labor or help purchased by consumers. Examples are the assistance of physicians, lawyers, dentists, repair personnel, housecleaners, educators, retailers, and wholesalers; items purchased or used by consumers that do not have physical characteristics.

Question 11

Opportunity Cost

Answer 11

The highest-valued, next-best alternative that must be sacrificed to obtain something or satisfy a want.

Question 12

Production Possibilities Curve (PPC)

Answer 12

A curve representing all possible combinations of maximum outputs that could be produced assuming a fixed amount of productive resources of a given quality.

Question 13

Technology

Answer 13

Society’s pool of applied knowledge concerning how goods and services can be produced.

Question 14

Efficiency

Answer 14

The case in which a given level of inputs is used to produce the maximum output possible. Alternatively, the situation in which a given output is produced at minimum cost.

Question 15

Inefficient Point

Answer 15

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

Question 16

Law of Increasing Additional Cost

Answer 16

The fact that the opportunity cost of additional units of a good generally increases as society attempts to produce more of that good. This accounts for the bowed-out shape of the PPC.

Question 17

Consumption

Answer 17

The use of and goods and services for personal satisfaction.

Question 18

Specialization

Answer 18

The organization of economic activity so that what each person (or region) consumes is not identical to what that person (or region) produces. An individual may specialize, for example, in law or medicine. A nation may specialize in the production of coffee, e-book readers, or digital cameras.

Question 19

Comparative Advantage

Answer 19

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

Question 20

Absolute Advantage

Answer 20

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

Question 21

Division of Labor

Answer 21

The segregation of resources into specific tasks; for example, one automobile worker puts on bumpers, another doors, and so on.