Chapter 2 Thinking Like an Economist

Question 0

Basic Competitive Model

Answer 0

Consumers behave rationally; firms seek profit maximization; markets are competitive

Question 1

competition

Answer 1

rivalry between producers for customers or between consumers for goods and services

Question 2

rational choice

Answer 2

people weigh the costs and benefits of each possibility whenever they make a choice

Question 3

perfect competition

Answer 3

firm charges more than going price means ALL sales are lost

Question 4

price taker

Answer 4

has no influence upon market price

Question 5

price system

Answer 5

insures that goods go to those individuals and firms that are most willing and able to pay for them

Question 6

private property

Answer 6

firms and individuals are able to own and use factories, land and buildings

Question 7

tragedy of the commons

Answer 7

deletion of a common resource when individual fail to take into account the impact of their actions on the resource

Question 8

rationing systems

Answer 8

individuals get less of a good than they would like at the offered price

Question 9

lotteries

Answer 9

goods allocated by random process

Question 10

coupons

Answer 10

can buy only so much at market price, inefficient and provides incentive for black market

Question 11

queues

Answer 11

goods given to those most willing to wait in line

Question 12

opportunity set

Answer 12

group of available options

Question 13

budget constraints

Answer 13

imposed by money on opportunity set

Question 14

time constraints

Answer 14

prescribed by time on opportunity set

Question 15

production possibilities

Answer 15

amount of goods a firm or society can produce, given a fixed amount of land, labor, and other inputs

Question 16

production possibilities frontier

Answer 16

boundary of the opportunity set in production decisions

Question 17

diminishing returns

Answer 17

adding successive units of any input increases the output by less and less

Question 18

costs

Answer 18

trade offs within opportunity sets

Question 19

relative price

Answer 19

the ratio of prices in the trade off

Question 20

opportunity cost

Answer 20

opportunities forgone in favor of something else (next best alternative)

Question 21

absolute advantage

Answer 21

one country can produce a good more efficiently (fewer inputs) than another

Question 22

comparative advantage

Answer 22

one country has a higher relative efficiency than another

Question 23

sunk cost

Answer 23

an expenditure that has already been made and cannot be recovered no matter what choice is made

Question 24

marginal costs

Answer 24

extra costs of doing something

Question 25

marginal benefits

Answer 25

extra benefits of doing something

Question 26

efficiency (Pareto)

Answer 26

Pareto efficient allocation means it is not possible to find another viable allocation where everybody is better off

Question 27

stock

Answer 27

quantity

Question 28

flow

Answer 28

variable including time