Opportunity Cost

Question 1

Define opportunity cost

Answer 1

The sacrificed benefits of the next best alternative forgone when a decision is made

Question 2

What is the law of diminishing marginal returns?

Answer 2

Each additional input (workers) add less and less to total output than the previous

Question 3

Define positive economics

Answer 3

Studies a scientific/objective explanation for how the economy works

Question 4

Define normative economics

Answer 4

Offers recommendations based on personal value judgements

Question 5

Define absolute advantage

Answer 5

A country has absolute advantage if they can produce the good or service at a lower cost/using fewer FoPs than competitors

Question 6

Define comparative advantage

Answer 6

A country has comparative advantage if it can produce a good at a lower opportunity cost than its competitors

Question 7

What is the law o comparative advantage

Answer 7

If the OC of good differ between two different countries they would mutually benefit from trade if they each specialised in the good they have comparative advantage in