Chapter 2

Question 1

Other things equal

Answer 1

only one variable changes at a time, all other factors remain constant

Question 2

other things equal simplifies

Answer 2

the world to make it easier to understand and study

Question 3

model

Answer 3

simplified representation of real situation that is used to better understand real life situations (generalization of world)

Question 4

production possibility frontier model

Answer 4

illustrates trade offs facing economy that produces only two goods, shows maximum quantity of one good that can be produced given quantity of other good

Question 5

does everyone benefit from trade

Answer 5

mostly everyone benefits from international trade

Question 6

describe production possibility graph ex what combinations are feasible and efficient

Answer 6

shaded=possible, not efficient
line=possible, efficient
above line= not possible

Question 7

Macro

Answer 7

is measurement obsession, how much country can produce with limited (scarce resources) and trade offs they make

Question 8

Efficiency of resources in production of g/s and opportunity cost

Answer 8

no way to produce more of good without producing less of another good, produce max quantity can produce with given, no left overs,

Question 9

opportunity cost

Answer 9

the value or cost of good to produce the other good

Question 10

opportunity cost thought process

Answer 10

what am i foregoing to achieve more of the other product.

Question 11

PPF increasing opportunity cost shape, and describe resource efficiency as more goods are produced

Answer 11

shape is concave, the more we make the more each one costs, resources not completely adaptable to alternative uses

Question 12

economic growth allows for a country to produce…

Answer 12

outside its PPF, growing ability of economy to produce g/s

Question 13

what causes economic growth

Answer 13

increase in factors of production, better technology

Question 14

factors of production

Answer 14

Land, Human capital, physical capital, Labour

Question 15

land

Answer 15

gifts of nature, all natural resources

Question 16

labour

Answer 16

mental activity and physical actions used to produce g/s, physical abilities of workforce

Question 17

physical capital

Answer 17

manufacturing aids used in production of g/s

Question 18

human capital

Answer 18

educational achievements and skills of the labor force

Question 19

Comparative advantage rule when purchasing and producing goods

Answer 19

produce the things you are good at, buy everything else from others when comparing countries for trade,

Question 20

How do you know if country/individual has comparative advantage

Answer 20

countries/individuals who have comp advantage will have a lower oppt cost for producing that specific good

Question 21

Absolute Advantage in comparison of production of 2 countries or people

Answer 21

comparing max good country or individual can produce if they focus all resources on one particular good

Question 22

barter

Answer 22

the direct exchange of goods and services without any money involved

Question 23

what is the diagram that shows the flow of transactions and money

Answer 23

circular flow diagram

Question 24

household definition in circular flow diagram

Answer 24

person or group of people that share income

Question 25

firm

Answer 25

organization that produces goods and services for sale

Question 26

Describe Circular Flow diagram (Firms 3)

Answer 26

1. Firms sell g/s they produce to households, in markets for g/s. 2. Firms buy resources they need to produce goods and services in factor markets. 3. Firms gets income and money.

Question 27

Describe Circular Flow diagram (households)

Answer 27

1. Households pay for goods and services, rent capital, and provide factors to the firms.

Question 28

positive economic statement

Answer 28

describes the way the economy actually runs THE FACTS

Question 29

normative economic statement

Answer 29

describes the way the economy SHOULD run, THE OUGHT TO BE

Question 30

why is PPF curve down and not constant

explain about diminishing returns when resources are moved

Answer 30

some resources are better suited for producing one good then another or are not as productive at producing both goods the same, so there are diminishing returns when moving such resources away from producing what they are best suited for

Question 31

resource endowments

Answer 31

how much of the resource factors a country has

Question 32

when low developed countries trade with developed countries, can low developed countries have comp advantage and do they benefit from trade as well

Answer 32

low developed countries can have com advantage in some products, and can benefit from trade as well

Question 33

Allocative Efficiency and representation on PPF

Answer 33

optimal distribution and allocative of resources of g/s economy prefers, represented by specific points on PPF

Question 34

productive efficiency and representation of PPF

Answer 34

concerns the max g/s an economy produces represented by all the points on the line of PPF

Question 35

economy’s income distribution is they way in which….

Answer 35

total income is divided among the owners of the various factors of production