Chapter 2

Question 1

opportunity cost

Answer 1

the highest value sacrificed

Question 2

what is the foundation of trade?

Answer 2

mutual gain

Question 3

how does trade create value?

Answer 3

value is subjective, facilitates specialization and division of labor, and helps encourage and spread knowledge

Question 4

transaction costs

Answer 4

the time, effort, and resources required to search out, negotiate, and conclude an exchange

Question 5

middlemen do what to transaction costs?

Answer 5

reduce them

Question 6

private ownership (3 things)

Answer 6

1. the right to exclusive rights
2. protection from invaders
3. the right to trade or sell it

Question 7

law of comparative advantage

Answer 7

the total output of a group/economy/whatever will be greatest when the output of each good is produced by the person with the lowest opportunity cost for that good

Question 8

two types of efficiency

Answer 8

technical (or productive): like the boundary of the PPC; economic: based on supply and demand

Question 9

entrepreneur

Answer 9

a profit-seeking decision-maker who bears the responsibility and financial risk of a business venture in seeking an uncertain potential reward