ECON 101 - Chp. 2

Question 1

Define the production possibilities frontier

Answer 1

the boundary between those combinations of goods + services that be produce and those that cannot

Question 2

what limits the production possibilities frontier

Answer 2

the total resources and technology available

Question 3

how does PPF illustrate scarcity

Answer 3

points outside the frontier are unattainable - describes wants that can’t be satisfied

Question 4

what does it mean for the points on or inside the PPF?

Answer 4

these points are attainable.

points on the PPF are when we use the all available resources + technology - efficient

points inside are when we do not use all available resources + technology - which is inefficient

Question 5

why are points inside the PPF considered inefficient?

Answer 5

because resources are unused and/or misallocated when not used at the most efficient points as fewer needs and wants are met.

regarding the PPF, we are giving up more than necessary of 1 good to produce a given quantity of the other good.

Question 6

describe how we can achieve production efficiency

Answer 6

if we produce goods + services at the lowest possible cost.

Question 7

why do we strive to produce on the PPF?

Answer 7

most efficient and where we incur the lowest possible cost of production (maximize the largest amount of wants + needs).

Question 8

define when a resource is unused

Answer 8

when they are idle but could be working

Question 9

define when a resource is misallocated

Answer 9

when they are assigned to tasks for which they are not the best match.

Question 10

describe how the opportunity cost is a ratio? in relation to the PPF?

Answer 10

it’s the decrease in the quantity produced of 1 good divided by the increase in the quantity produced of another good as we move along the PPF

Question 11

Why is the PPF bowed outward? relate it to opportunity cost

Answer 11

resources are not all equally productive in all activities - opportunity cost increase as more of 1 good is increased

Question 12

define allocative efficiency

Answer 12

when goods + services are produced at the lowest possible cost + in quantities that provide the greatest possible benefit

Question 13

define marginal cost of a good or service

Answer 13

the opportunity cost of produce one more unit of it

Question 14

how to calculate the marginal cost on the PPF?

Answer 14

from the magnitude of the slope of the PPF - putting it into a vertical bar chart to see the slope

Question 15

define the marginal benefit of a good or service

Answer 15

the benefit received from consuming 1 more unit of it

Question 16

what does the production possibilities describe?

Answer 16

the limits or constraints on what is feasible

Question 17

define the marginal benefit curve

Answer 17

a curve that shows the relationship ebtween marginal benefit of a good and the quantity consumed of that good

Question 18

is PPF and marginal benefit curve related?

Answer 18

no, they are unrelated

Question 19

How can we measure marginal benefit of a good or service

Answer 19

Willingness to pay - the most people are willing to pay for an additional unit of it

Question 20

Define the principle of decrease marginal benefit

Answer 20

the more we have of any good or service, the smaller the marginal benefit and the less we are willing to pay for an additional unit of it.

Question 21

Define the point of allocative efficiency

Answer 21

the point on the PPF that meets the marginal cost and marginal benefit
- satisfies/maximizes the most wants + needs of people for 2 different goods or services.

Question 22

define specilalization

Answer 22

producing only 1 or a few goods

Question 23

define comparative advantage (in an activity)

Answer 23

if that person can perform the activity at a lower oppourtunity cost than anyone else

Question 24

describe where differences in oppourtunity costs arise?

Answer 24

differences arise from differences in individual abilities and in the characteristics of other resources.

Question 25

define absolute advantage

Answer 25

a person who is more productive than others

Question 26

absolute vs comparative advantage - difference in what they compare

Answer 26

absolute - compares productivity (production per hour)

comparative - compares the oppourtunity cost

Question 27

describe a situation where the PPF is linear and not bowed outward

Answer 27

when the oppourtunity cost stays constant

Question 28

define economic growth

Answer 28

the expansion of production possibilities

Question 29

where does economic growth come from?

Answer 29

technological change + capital accumulation

Question 30

define techonological change

Answer 30

development of new goods + of better ways of producing goods + services

Question 31

define capital accumulation

Answer 31

the growth of capital resources - includes human capital

Question 32

economic growth characteristics

Answer 32

increases our standard of living but its doesn’t overcome scarcity and avoid oppourtunity cost

Question 33

What’s the oppourtunity cost of economic growth?

Answer 33

decrease of our production of the consumption of goods + services aka less current consumption

Question 34

what’s a benefit of economic growth in terms of consumption?

Answer 34

brings benefit in the form of increased consumption in the future.

Question 35

how does the pattern of of what is produced change from the expansion of production possibilities? Why?

Answer 35

goes from mainly agriculture to industry/manufacturing to services.

due to more resources allocated efficiently for people to meet more of their wants + needs more satisfactorily

Question 36

what’s happens in terms of the PPF when the workforce chooses to stay unemployed?

Answer 36

the economy moves inside its PPF.

Question 37

Why does Central economic planning work badly?

Answer 37

economic planners do not know people’s production possibilities + preferences so production ends up inside the PPF and the wrong things are produced.

Question 38

What type of coordination works best?

Answer 38

decentralized coordination

Question 39

what are the 4 complementary social institutions decentralize coordination needs?

Answer 39

1. firms
2. markets
3. property rights
4. money

Question 40

define a firm

Answer 40

an economic unit that hires factors of production + organizes them to produce + sell goods + services

Question 41

what’s a characteristic of a firm

Answer 41

firms coordinate a huge amount of economic activity + there’s a limit to the efficient size of a firm

Question 42

Define market in terms of econ

Answer 42

any arrangement/network that enables buyers + sellers to get info and to do business with each other

Question 43

What’s a characteristic of a market?

Answer 43

can only work when property rights exist

Question 44

Define property rights

Answer 44

the social arrangement that govern the ownership, use, and disposal of anything that people value

Question 45

define real property

Answer 45

land + buildings - physical infrastructure + durable goods (plants + equipment)

Question 46

Define financial property

Answer 46

stocks, bonds, money in the bank

Question 47

Define intellectual property

Answer 47

intangible product of creative effort - protected by copyrights + patents

Question 48

What’s a characteristic of when property rights are enforced?

Answer 48

people have the incentive to specialize + produce goods/services where they have a comparative advantage in.

As well, where people can steal the production of others, resources are devoted not to production but to protecting possessions

Question 49

Define money in econ

Answer 49

any commodity or token that is generally acceptable as a means of payment

Question 50

Why do we use money in markets?

Answer 50

makes tracing in markets more efficient than bartering

Question 51

How is a circular flow of expenditures + incomes created?

Answer 51

from trading in markets for goods + services + factors of production

Question 52

Please draw the Circular flow (in a market economy) and explain the process

Question 53

how do markets coordinate decisions?

Answer 53

price adjustments

Question 54

When does an economy face a tradeoff?

Answer 54

only when it uses all the available resources

Question 55

Define when production is unnattainable

Answer 55

if production uses more resources than are available

Question 56

What happens to the oppourtunity cost of all goods when the production of the good increase?

Answer 56

it increases