Chapter 3:ValueCreation Through Production

Question 1

production process

Answer 1

turns inputs into consumable outputs

Question 2

consumable outputs

Answer 2

goods and services

Question 3

resources/inputs

Answer 3

Natural Resources/land tangible, but not produced by anyone Rent
Labor physical and mental talents, applied to production Wage
Capital produced means of production Interest
Entrepreneurship risk taking/risk bearing and innovation Profit

Question 4

Technology

Answer 4

is the way that inputs are combined to produce output

Question 5

Make Work Fallacy

Answer 5

The idea that jobs are valuable, whether or not the labor’s production adds value

Question 6

Production Possibilities Frontier (PPF)

Answer 6

• Only two goods are produced over some time period
• Using some fixed amount of resources
• And a given technology

Question 7

law of increasing opportunity cost (LIOC)–

Answer 7

as more of one good is produced, the opportunity cost of producing a unit of that good rises, in terms of the other good which must be sacrificed

Question 8

Economic Growth

Answer 8

has occurred–an expansion of an economy’s productive capabilities.

Question 9

, income and wealth depend on

Answer 9

• quantity of resources
• quality of resources
• freedom to use those resources

Question 10

Human Capital

Answer 10

Individuals upgrade their labor by education and training

Question 11

invisible hand

Answer 11

to promote an end which was no part of his intention… By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.