Chapters 2&3 Flashcards
The ___ of an action is the value of the next best alternative that must be foregone in order to undertake the activity.
opportunity cost
The opportunity cost of an action is the value of the next best ___.
alternative
As you produce more of a good, the opportunity cost of producing that good ___.
increases
The PPC is bowed ___.
outward
The ___ states that in expanding the production of a good, employ the resources with the lowest opportunity cost first.
Principle of Increasing Opportunity Cost
The Principle of Increasing Opportunity cost is also called the ____ principle.
low-hanging fruit
Increases in ___ and improvements in ___ or ____ affect the PPC.
productive resources
knowledge or technology
A person has ___ in the production of a good if the opportunity cost of producing that good is lower than for anyone else.
comparative advantage
The __ states that everyone does the best when each person specializes on the activities for which his or her opportunity cost is the lowest.
Principle of Comparative Advantage
___ means self-sufficiency, no interaction.
Autarky
A person has a(n) ___ in the production of a good if he/she can produce more of that good than anyone else, using the same resources.
absolute advantage
As with individuals, nations can benefit from __ and __
specialization
exchange
The Principle of Comparative Advantage implies that ___ will increase the total value of goods and services.
free trade
The ___ aims to deepen economic ties between its 12 participating nations.
Trans-Pacific Partnership
The Trans-Pacific Partnership lowers ____ and fosters ___ to boost growth.
tariffs
trade
The Trans-Pacific Partnership also fosters a closer relationship on __- and ____.
economic policies
regulation
The Three Big Questions of Supply and Demand include:
- 3.
- What goods and services should be produced?
- How should we produce them?
- Who should get them?
___ are where you have one governing body that makes decisions.
Command economies
___ are where everything is done by consensus and cooperation.
Cooperative economies
___ entail very little government regulation.
Individualistic economies
The major actors of economies are __ and ___.
firms
households/consumers
___ are any organization that transform inputs into outputs.
Firms
___ are the consuming units of an economy.
Households/consumers
The Law of Demand states that when all else is equal, the higher the price of a good, the ____ the quantity is demanded.
lower
Demand has a __ slope.
negative
The ___ entails the change in the quantity demanded of a good that results from buyers using other goods when its price changes.
substitution effect
The ___ entails the change in the quantity demanded of a good that results from the reduction in purchasing power when the price of a good increases.
income effect
A ____ is the largest dollar amount a buyer would be willing to pay for a good or service.
buyer’s reservation price
Reservation prices may very depending on the person-to-person, and depending on ___.
quantity consumed
When the market price is ___, fewer consumers will have reservation prices that are high enough to justify the purchase of the good or service.
high
The buyer’s reservation price explains why demand curves are ____.
downward sloping
Change in demand entails a change in the entire relationship between ___ and ____.
price
quantity demanded
An increase in demand means that the quantity demanded is higher ___.
at every price
A ____ means that the quantity demanded is lower at every price.
decrease in demand
(Factors that increase demand)
- An increased ____ for the good or service.
preference
(Factors that increase demand)
- An increase in ___.
income
When income increases, ___ are consumed more.
normal goods
(Factors that increase demand)
- A decrease in ___.
income
When income decreases, ___ are consumed more.
inferior
(Factors that increase demand)
- A ___ in the price of a complementary good or service.
decrease
(Factors that increase demand)
- An ___ in the price of a substitute good or service.
increase
(Factors that increase demand)
- An increase in __.
population
(Factors that increase demand)
- An increase in ___.
future prices
___ entails the amount that producers supply at a particular price.
Quantity supplied
___ is a point on a supply curve.
Quantity supplied
___ is the entire relationship between price and the quantity supplied.
Supply
The __ states that all else equal, the higher the price of a good, the higher the quantity supplied of it.
Law of Supply
A ___ is the smallest dollar amount for which a seller would be willing to sell an additional unit of a good or service.
seller’s reservation price
___ measures how much it costs sellers to produce another unit.
Seller’s reservation price
Reservation prices may very between sellers, and depending on _____.
how much of a good or service has been produced
The ___ measures the cost to producers of producing an additional unit of a good or service.
marginal seller’s reservation price
The ___ shows the price at which there will be a buyer who drops out of the market.
marginal buyer’s reservation price
The ___ interpretation states that at a given price, the demand curve shows quantity demanded.
Horizontal
The ___ interpretation states that at a given quantity, the demand curve shows the marginal buyer’s reservation price.
vertical
The ___ interpretation states that at a given quantity, the supply shows the marginal seller’s reservation price.
vertical
The __ interpretation states that at a given price, the supply curve shows the quantity supplied.
horizontal
__ is the change in the entire relationship between price and quantity supplied.
Change in supply
An ___ means that the quantity supplied is higher at every price.
increase in supply
(Factors that increase supply)
- A ___ in the price of inputs used in the production process.
reduction
Inputs in the production process include __, ___, and ___.
land
labor
capital
(Factors that increase supply)
- An improvement in __ that reduces production costs.
technology
(Factors that increase supply)
- An improvement in __.
weather
(Factors that increase supply)
- An ___ in the number of suppliers.
increase
(Factors that increase supply)
- A ___ decrease in expected future prices.
decrease
In ___, price equates the quantity supplied and demanded.
market equilibrium
___ is the price at which quantity supplied equals quantity demanded.
Equilibrium price (P*)
___ is the quantity bought and sold at the equilibrium price.
Equilibrium quantity (Q*)
If supply and demand move in the same direction (both increase/decrease), you can make definite predictions about ___, but not ___.
quantity
price
If supply and demand move in opposite directions (one increases and the other decreases), you can make definite predictions about ___, but not __.
price
quantity
Even though we can’t see supply and demand curves, they help us make predictions about how price and quantity will respond to various __.
economic shocks
In order to determine if the market produces the socially optimal quantity of a good, find the ___.
total economic surplus
In order to determine if markets produce too little or too much of a given good or service, find the __.
total economic surplus
In order to determine if market equilibrium is the right quantity, find the ___.
total economic surplus
___ is the difference between the buyer’s reservation price for a product and the price actually paid.
consumer surplus
Consumer surplus equation:
BRP - P*
___ is the difference between a price a seller receives for a product and the seller’s reservation price.
Producer surplus
Producer surplus equation
P* - SRV
___ is the quantity of a good that results in the maximum possible economic surplus from producing and consuming the good.
Socially optimal quantity
___ occurs when goods and services are produced at their socially optimal levels.
Efficiency
(Market Equilibrium isn’t socially optimal when..)
Consumption or production entails __ to people other than buyers.
benefits
(Market Equilibrium isn’t socially optimal when..)
Consumption or production entails costs not borne by ___.
sellers
(Market Equilibrium isn’t socially optimal when..)
If supply and demand curves do not reflect all costs and benefits associated with __ and __-.
production
consumption
If supply and demand curves reflect all costs and benefits associated with production and consumption, ____ are efficient.
perfectly competitive
Foreign-born workers and native-born do not always possess the same __.
skill set
Foreign-born workers and native-born workers can be thought of as different __.
factors of production
If immigration leads firms to ___ output, they will need more inputs (workers).
expand
|slope| = opportunity cost of the good on the ___ axis.
horizontal
1/|slope| = opportunity cost of the good on the ___ axis.
vertical
