Key Terms

Question 1

The ability to produce more of a good or service than another person to society with the same numbers of inputs. Alternatively means one person or society can make a unit of output with fewer units of input than its counterpart.

Answer 1

Absolute Advantage

Question 2

The amount of production that benefits society the most. It is achieved when the marginal benefit of production equals the marginal cost. Also known as the society optimal level of output.

Answer 2

Allocative Efficiency

Question 3

The tools, machines factories, and buildings used to produce goods and services. Includes physical capital, which ranges from hammers to industrial robots and human capital, which is “know-how” or specialized skills that get fused to labor through education and training.

Answer 3

Capital

Question 4

“Other things being equal” The assumption that all variables remain constant except for those being studied by the economist.

Answer 4

Ceteris Paribus

Question 5

A model or diagram showing how households and firms interact and resource markets.

Answer 5

Circular flow diagrams

Question 6

An economic system in which government planners make most of the choices for the economy and answer the basic questions of what to produce, how to produce, and for whom to produce.

Answer 6

Command Economy

Question 7

The ability to produce a good or service at a lower opportunity cost than someone else.

Answer 7

Comparative Advantage

Question 8

The study of choices that presumptively rational people make to get what they need and want given the condition of scarcity (divided into macro and micro)

Answer 8

Economics

Question 9

An individual who studies economics

Answer 9

Economist

Question 10

An individual who possess the factor of production called entrepreneurship, run firms that attempt to maximize profit.

Answer 10

Entrepreneur

Question 11

The special ability of some individuals to take risks and combine land, labor, and capital in new ways in order to make profits by providing a good or service instead of selling their labor to an employee.

Answer 11

Entrepreneurship

Question 12

The resources used to produce goods and services. These include land, labor, capital, and entrepreneurship

Answer 12

Factors of production.

Question 13

People’s mental and/or physical effort and skill used in producing goods and services.

Answer 13

Labor

Question 14

Natural resources used in producing goods and services.

Answer 14

Land

Question 15

As the production of one good increases, producers must sacrifice ever-increasing amounts of the other goods because factors or production are not perfectly interchangeable between the production of both goods.

Answer 15

Law of increasing opportunity

Question 16

The additional benefit of consuming one extra unit of a good or service. The rate of change or slope of total benefit

Answer 16

Marginal benefit

Question 17

The additional cost of producing one extra unit of a good or service. The rate of change or slope of total cost.

Answer 17

Marginal Cost

Question 18

A forum for interactions between demanders wishing to make purchases and suppliers wishing to make sales.

Answer 18

Market

Question 19

An economic system that relies on individuals pursuing their own self-interest in the market in order to cope with scarcity.

Answer 19

Market Economy

Question 20

That which is given up when a choice is made about the use of a scarce resource.

Answer 20

Opportunity Cost

Question 21

An economic model that shows all of the possible combinations of two goods that could be produced using scarce factors of production.

Answer 21

Production possibilities curve/Frontier

Question 22

The condition that exists when the least amount of waste happens in producing as much output as possible. When a society is using all its resources to produce goods and services

Answer 22

Productive Efficiency

Question 23

The fundamental problem of economics, exists because people’s wants and needs are greater than the available resources to meet those wants and needs.

Answer 23

Scarcity

Question 24

A person or society’s decision to focus production on a particular good or service, leading it to trade with others for remaining goods it needs.

Answer 24

Specialization

Question 25

The rate at which people trade two goods. The ration or “real price” for which a unit of one good can be purchased for units of another good.

Answer 25

Terms of trade