Ch. 2

Question 1

opportunity cost

Answer 1

the value of what we give up

Question 2

How do I calculate opportunity cost?

Answer 2

Figuring out what you’re giving up when you make a choice

Question 3

____ is always a limited resource

Answer 3

time

Question 4

involve selecting the option that you value the most

Answer 4

rational choices

Question 5

opportunity cost can often be measured in _____

Answer 5

money

Question 6

sunk cost

Answer 6

costs that have already happened and can’t be changed, so they are not relevant to your current decision

Question 7

absolute advantage

Answer 7

the ability to produce more of a good or service with the same resources compared to others

Question 8

comparative advantage

Answer 8

the ability to produce a good or service at a lower opportunity cost than others

Question 9

_____ focuses on producing what you’re best at to maximize overall productivity

Answer 9

specialization

Question 10

trading goods and services directly without using money

Answer 10

barter

Question 11

products used by an individual for personal use, such as food, clothing, and electronics

Answer 11

consumer goods

Question 12

goods used to produce other goods and services, like buildings, factories, and tools

Answer 12

capital goods

Question 13

Production Possibilities Frontier (PPF)

Answer 13

a curve that shows the maximum possible output combinations of two products an economy can produce with its current resources and technology

Question 14

law of increasing opportunity cost

Answer 14

as you produce more of one good, the opportunity cost increases because resources are not perfectly adaptable to all uses

Question 15

Efficiency occurs when the economy is producing at a point on the PPF, meaning…

Answer 15

all resources are fully utilized

Question 16

Outward shift of PPF

Answer 16

when the economy gains more resources, makes technological advancements or improves policies/regulations

Question 17

inward shift PPF

Answer 17

economy loses recourses, faces technological setbacks, or experiences greater uncertainty in rules or policies

Question 18

change benefiting consumer goods

Answer 18

an increase in resources, technology, or better rules specifically for consumer goods. Allow more consumer goods to be produced at any level of capital goods

Question 19

Every economic system must answer these three fundamental questions:

Answer 19

1. What goods and services should we produce?
2. How should we produce these goods and services?
3. Who gets the goods and services we produce?

Question 20

capitalism economy

Answer 20

Prices in unregulated markets guide production and distribution. Private owners make decisions based on profit (ex. U.S).

Question 21

command economy

Answer 21

(ex. North korea) the government controls production, methods, and distribution.