Midterm 1: Chapter 1, & 2

Question 1

What is the Production Possibilities Frontier?

Answer 1

Curve showing the maximum attainable combinations of two products produced with available resources

Question 2

Combinations along the PPF

Answer 2

Are Efficient

Question 3

Combinations inside the PPF

Answer 3

are inefficient

Question 4

Combinations outside the PPF

Answer 4

are unobtainable

Question 5

What is scarcity?

Answer 5

Human wants are unlimited but available resources are limited

Question 6

What is the study of Economics

Answer 6

study of choices of consumers, business managers, and government officials make to attain goals, given scarce resources

Question 7

What are Economic modeld?

Answer 7

simplified versions of reality used to analyze real world problems

Question 8

What are 3 Key Economic Ideas- Describe too

Answer 8

1. People are rational - using all available info to achieve there goals
2. People respond to economic incentives -
3. Optimal decisions are made at the margin

Question 9

What is opportunity Cost?

Answer 9

Highest valued alternative that must be given up for an activity

Question 10

What are 3 fundamental questions involving trade-offs

Answer 10

1. What goods will be produced
2. How will the goods be produced
3. Who will receive the goods and services produced

Question 11

Centrally planned vs. Market economy

Answer 11

Centrally planned decides on how economic resources are allocated
Market decisions of households and firms allocate resources

Question 12

Mixed Economy

Answer 12

Economic decisions result from actions of buyers/sellers, but the government also plays a large role in allocation of resources

Question 13

Productive Efficiency

Answer 13

when a good/service is produced at lowest cost

Question 14

Allocative efficiency

Answer 14

production is in accordance to consumer preference, things are produced up until the marginal benefit equals marginal cost of producing it

Question 15

Voluntary exchange

Answer 15

When both buyer and seller are better off from exchange

Question 16

Positive analysis

Answer 16

analysis concerned with “what is”

ex - data concerning minimum wage

Question 17

Normative Data

Answer 17

analysis concerned with “what ought to be”

ex - should we raise minimum wage after looking at effects it has on economy

Question 18

The more resources devoted to an activity on PPF

Answer 18

smaller payoff devoting additional resources to that activity

Question 19

How does increase in labor force, capital stock, or technological growth affect the PPF

Answer 19

causes the line to shift outward, representing economic growth

Question 20

Absolute Advantage

Answer 20

ability of a firm, country, or individual to produce more of a good/service than competitors, using the same amount of resources

Question 21

Comparative Advantage

Answer 21

ability of firm/country to produce something at a lower opportunity cost than its competitors

Question 22

What is the basis of trade

Answer 22

Comparative advantage (not absolute)

Question 23

What is a market and describe 2 types

Answer 23

Market is a group of buyers and sellers and arrangement they come together to trade.

1. Product market - market for goods
2. Factor Market - market for factors of production

Question 24

What are four areas of factors of production

Answer 24

1. Labor - people who do jobs
2. Capital-physical capital used to produce other goods
3. Natural Resources - raw materials (oil, iron ore)
4. Entrepreneur- brings together factor of production to produce goods and services

Question 25

What is a Free Market

Answer 25

A market with few government restrictions on how things should be produced/sold and how resources are employed

Question 26

Who is father of modern Economics and what did he do?

Answer 26

Adam Smith - he wrote the book “An Inquiry into the Nature and causes of wealth of nations” argued that restrictions decreased overall wealth

Question 27

Property Rights

Answer 27

Rights individuals and firms have to the exclusive use of their property, including right to buy and sell it

Question 28

Define Intellectual property rights and patents

Answer 28

They are rights to books, films, software and ideas to produce goods.
Patent gives owner exclusive right to sell product for 20 years