Chapter 2 - Thinking Like and Economist

Question 1

Tangible items such as food, cars, & clothing

Answer 1

Goods

Question 2

Intangible items such as education, health care, & leisure

Answer 2

Services

Question 3

Things that limit

Answer 3

Constraints

Question 4

Attempts to assess the economy & economic policies without resorting to value judgments = based on scientific/facts

Answer 4

Positive Economics

Question 5

Attempts to assess the economy & economic policies and involves the use of value judgments - Cannot be tested scientifically

Answer 5

Normative Economics

Question 6

An explanation of why certain phenomena occur

Answer 6

Economic Theory

Question 7

“All else held constant” or “other-things-equal”

Answer 7

Ceteris Paribus

Question 8

A highly simplified representation of a more complicated reality

Answer 8

Models

Question 9

Name the 5 resources the economy uses to produce goods & services

Answer 9

1) Land OR Natural Resources
2) Labor OR Human Resources
3) Capital OR Investment Goods
4) Entrepreneurship
5) Technology

Question 10

All natural resources on the land, under the land, in the water, or in the air

Answer 10

1) Land OR Natural Resources

Question 11

The work effort of human beings both physical & mental

Answer 11

2) Labor OR Human Resources

Question 12

Productive implements made by people to make more things

Answer 12

3) Capital OR Investment Goods

Question 13

A special kind of labor/human resource = creative labor

Answer 13

4) Entrepreneurship

Question 14

The practical applications of scientific knowledge

Answer 14

5) Technology

Question 15

The term used to describe All available resources are used (both human and otherwise)

Answer 15

Full Employment

Question 16

The term used to describe Employed resources are providing maximum satisfaction of our economic wants
= producing the right goods (allocative efficiency) in the right way (productive efficiency).

Answer 16

Full Production OR Economic Efficiency

Question 17

Resources are used to produce the combination of goods and services wanted by society

Answer 17

Allocative Efficiency

-see “Full Production OR Economic Efficiency”

Question 18

Least costly production techniques are used to produce wanted goods and services

Answer 18

Productive Efficiency

-see “Full Production OR Economic Efficiency”

Question 19

1) The economy is operating efficiently = full employment and full production
2) Fixed Resources
3) Fixed Technology
4) 2 Goods = Economy only produces two types of products

Answer 19

4 Assumptions of Production Possibilities Frontier (PPF)

Question 20

As the production of a particular good increases, the opportunity costs of producing an additional unit rises because resources are specialized

Answer 20

Law of Increasing Opportunity Costs

Question 21

(on the line or inside the line) any combination of goods that can be produced using currently available resources

Answer 21

Attainable (on PPF)

Question 22

(outside the line) any combination of goods that cannot be produced using currently available resources

Answer 22

Unattainable (on PPF)

Question 23

(inside the line) any combination of goods for which you can produce more of one good without having to give up some of the other

Answer 23

Inefficient (on PPF)