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
