Definitions

Question 1

Production Possibility Curve

Answer 1

Represents all maximum output possibilities for two (or more) goods, given a set of inputs (or resources - i.e., time) if inputs are used efficiently.

Question 2

Cost-benefit principle

Answer 2

an action should be taken if the marginal benefit is greater than the marginal cost

Question 3

Quantity supplied

Answer 3

quantity of a given g/s that maximises the profit of the supplier

Question 4

Supply curve

Answer 4

relationship b/w the price of a g/s and the quantity supplied of that g/s

Question 5

Law of Supply

Answer 5

tendency for a producer to offer more of a certain g/s when the price of that g/s increases

Question 6

Sunk cost

Answer 6

cost that once paid cannot be recovered

Question 7

Factor of production is fixed

Answer 7

cost does not vary w/ the quantity produced

Question 8

Fixed cost

Answer 8

cost associated w/ a fixed factor of production

Question 9

Factor of production is variable

Answer 9

cost tend to vary w/ the quantity produced

Question 10

Variable cost

Answer 10

cost associated w/ a variable factor of production

Question 11

Short run shut down condition

Answer 11

period of time during which at least of one factor of production is fixed

Question 12

Long run shut down condition

Answer 12

period of time during while all factors of production are variable

Question 13

Profit

Answer 13

difference b/w the total revenue and total cost

Question 14

Price Elasticity of Supply

Answer 14

% change in the quantity of supplied resulting from a very small % change in price. It also measures the responsiveness of the supply to change in price.

Question 15

Law of supply

Answer 15

supply curves have the tendency of being upward sloping

Question 16

Market

Answer 16

The Market for a given good or service is the set of
all the consumers and suppliers who are willing to
buy and sell that good or service at a given price

Question 17

Market Equilibrium

Answer 17

Market Equilibrium occurs when the price and the
quantity sold of a given good is stable.
OR
Market
equilibrium occurs when the equilibrium price is
such that the quantity that consumers want today is
the same as the quantity that suppliers want to sell.

Question 18

Marginal Benefit

Answer 18

The Marginal Benefit of producing a certain unit
of a given good is the extra benefit accrued by
producing that unit.

Question 19

Marginal Cost

Answer 19

The Marginal Cost of producing a certain unit of
a given good is the extra cost of producing that
unit. (!!! The relevant cost is the “opportunity
cost” and not just the “absolute cost” of
producing the good.)

Question 20

Economic Surplus

Answer 20

The Economic Surplus of a certain action is the
difference between the marginal benefit and the
marginal cost of taking that action.

Question 21

Quantity Supplied

Answer 21

The Quantity Supplied by a supplier represents

the quantity of a given good or service that maximizes the profit of the supplier.

Question 22

Supply Curve

Answer 22

The Supply Curve represents the relationship
between the price of a good or service and the
quantity supplied of that good or service.

Question 23

Law of Supply

Answer 23

The tendency for a producer to offer more of a
certain good or service when the price of that
good or service increases.

Question 24

Sunk Cost

Answer 24

A Sunk Cost is a cost that once paid cannot be

recovered.

Question 25

Fixed Cost

Answer 25

A Fixed Cost is a cost associated with a fixed | factor of production.

Question 26

Variable Cost

Answer 26

A Variable Cost is a cost associated with a | variable factor of production.

Question 27

Profit

Answer 27

``` The Profit represents the difference between the total revenues (TR) and the total costs (TC). ```

Question 28

Price Elasticity of Supply

Answer 28

The Price Elasticity of Supply represents the percentage change in the quantity supplied resulting from a very small percentage change in price. It also measures the responsiveness of the supply to changes in price

Question 29

Elastic Supply

Answer 29

Supply is elastic when the price elasticity of supply is greater than 1.

Question 30

Unit Elastic Supply

Answer 30

Supply is unit elastic when the price elasticity of supply is equal to 1.

Question 31

Inelastic Supply

Answer 31

Supply is inelastic when the price elasticity of supply is less than 1.

Question 32

Model

Answer 32

Model is a simplified representation of reality.

Question 33

Efficient Production Point

Answer 33

combination of goods for which currently available resources (i.e. time) do not allow an increase in the production of one good without a reduction in the production of the other. All the points on the PPC are efficient.

Question 34

Inefficient Production Point

Answer 34

combination of goods for which currently available resources (i.e. time) allow an increase in the production of one good without a reduction in the production of the other. All the points below and to the left of the PPC are inefficient.

Question 35

Attainable Production Point

Answer 35

any combination of goods that can be produced with the currently available resources (i.e. time). All the points on the PPC or below and to the left of the PPC are attainable.

Question 36

Unattainable Production Point

Answer 36

any combination of goods that cannot be produced with the currently available resources (i.e. time). All the points that lie outside of the PPC are unattainable.

Question 37

Absolute Advantage

Answer 37

when he/she can carry on this activity with less resources (for example, less time) than another agent.

Question 38

Opportunity Cost

Answer 38

value of the next best alternative to that particular action.

Question 39

Comparative Advantage

Answer 39

when the economy has a lower opportunity cost of carrying on that activity than another agent.

Question 40

Principle of Comparative Advantage

Answer 40

everyone is better off if each agent (or each country) specializes in the activities for which they have a comparative advantage

Question 41

The Low-Hanging Fruit Principle (or Increasing Opportunity Cost)

Answer 41

process of increasing the production of any good, one first employs those resources with the lowest opportunity cost and only once these are exhausted turn to resources with higher cost.

Question 42

Consumption Possibility Curve (CPC)

Answer 42

represents all possible combinations that the economy can feasibly consume when it is open to international trade