Ch. 2 — The Econmic Problem

Question 0

Allocative efficiency, 33

Answer 0

A situation in which goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit. We cannot produce more of any good without giving up some of another good that we “value more highly”.

Question 1

Absolute advantage, 38

Answer 1

A person has an absolute advantage if that person is more productive than another person.

Question 2

Capital accumulation, 36

Answer 2

The growth of capital resources, including human capital.

Question 3

Comparative advantage, 38

Answer 3

A person or country has a comparative advantage in an activity if that person or country can perform the activity at a lower opportunity cost then anyone else or any other country.

Question 4

Economic growth, 36

Answer 4

The expansion of production possibilities.

Question 5

Firm, 41

Answer 5

An economic unit that hires factors of production and organizes those factors to produce and sell goods and services.

Question 6

Marginal benefit, 34

Answer 6

The benefit that a person receives from consuming one more unit of a good or service. It is measured as the maximum amount that a person is willing to pay for one more unit of the good or service.

Question 7

Marginal benefit curve, 34

Answer 7

A curve that shows the relationship between the marginal benefit of a good and the quantity of that good consumed.

Question 8

Marginal cost, 33

Answer 8

The (opportunity cost) of producing (one) more unit of a good or service. It is the best alternative forgone. It is calculated as the increase in total cost divided by the increase in output.

Question 9

Market, 42

Answer 9

Any arrangement that enables buyers and sellers to get information and to do business with each other.

Question 10

Money, 42

Answer 10

Any commodity or token that is generally acceptable as the means of payment.

Question 11

Opportunity cost, 31

Answer 11

The highest-valued alternative that we must give up to get something.

Question 12

Preferences, 34

Answer 12

A description of a person’s likes and dislikes and the intensity of those feelings.

Question 13

Production efficiency, 31

Answer 13

Aa situation in which goods and services are produced at the lowest possible cost.

Question 14

Production possibilities frontier, 30

Answer 14

The boundary between the combination of goods and services that can be produced and the combination that cannot.

Question 15

Property rights, 42

Answer 15

The social arrangements that govern the ownership, use, and disposal of anything that people value. Property rights are enforceable in the courts.

Question 16

Technological change, 36

Answer 16

The development of new goods and of better ways of producing goods and services.