I.A-F Exam

Question 1

scarcity

Answer 1

there are unlimited wants, but limited goods and services (resources) to obtains those wants

Question 2

what does scarcity force people to do?

Answer 2

forces all of us to make choices by making us decide which option are most important to us

Question 3

what are the four golden rules of economics?

Answer 3

1. there are limited wants
2. there are unlimited wants
3. we must make decisions
4. decisions lead to opportunity cost

Question 4

ceteris parabus

Answer 4

all other things equal

Question 5

what are the resource categories (4)

Answer 5

1. land
2. labor
3. capitol
4. entrepreneurship

Question 6

what does a PPC curve show? (production possibilities curve)

Answer 6

• full employment
• fixed resources
• fixed technology
• two goods (consumer goods and capital goods)

Question 7

what is the optimal allocation of resources?

Answer 7

MB = MC

Question 8

explicit cost?

Answer 8

include all the transactions pertaining to factors of production utilized by a given company.

Question 9

implicit cost?

Answer 9

represent opportunity costs that use a company’s internal resources without any explicit compensation for utilizing those resources.

Question 10

circular flow model

1. what do households offer resource markets?
2. what do resource markets offer households?
3. what do households offer product market?
4. what do product market offer households?
5. what do businesses offer product market?
6. what do product markets offer businesses?
7. What do businesses offer resource markets?
8. What do resource markets offer businesses?

Answer 10

1. land, labor, capital, entrepreneurship
2. income
3. consumption of product
4. goods and services
5. goods and services
6. revenue
7. costs
8. resources

Question 11

comparative advantage

Answer 11

who can produce something with the lowest opportunity cost (who gives up the least)

Question 12

absolute advantage?

Answer 12

who is the best at producing the item (who makes more (output) or who makes it faster (input))

Question 13

how do you know when it is an output problem?

Answer 13

this is where you maximize your production given a fixed amount of time (who can produce the most cookies in an hour?)

Question 14

how do you know when it is an input problem?

Answer 14

where you want to minimize the resources that go into the production of a fixed amount of production (who can clean one room the fastest?)

Question 15

when you are trying to find the absolute advantage in an output problem what number would it be? (higher or lower number)

Answer 15

higher number

Question 16

when you are trying to find the absolute advantage in an input problem what number would it be? (higher or lower number)

Answer 16

lower number

Question 17

when you solve for comparative advantage what does this mean?

Answer 17

this decides who does what