question
What is production possibilities frontier (PPF)?
answer
This is a curve showing all possible combination of goods and services an economy can produce with its available resources.
question
What is absolute advantage?
answer
If a person or a country has this advantage over others on producing something, it can produce a larger amount of the item than others for a given amount of resource.
question
What is comparative advantage?
answer
If a person or a country has this advantage over others on producing something, it can produce this item at a lower opportunity cost than others.
question
What is opportunity set?
answer
Any production along the PPF or inside the PPF is said to be in this set.
question
What is the law of demand?
answer
This law in supply and demand model suggest that other things equal, quantity demanded would fall when the price of the good rises.
question
What is a normal good?
answer
An SUV will be this type of good if the demand for it rises with income.
question
What is equilibrium price?
answer
At this price, quantity demanded will equal to quantity supplied.
question
What is increase in supply?
answer
Other things equal, when this happens, equilibrium quantity rises and equilibrium price falls.
question
What is the opportunity cost?
answer
This is what one must give up to obtain what he or she desires, and is the relevant cost for decision making.
question
What is the marginal benefit?
answer
A rational person will make the decision X if this is greater than the marginal cost of X.
question
What is a normative statement?
answer
This is a type of statement that is a subjective opinion, not a factual statement that can be tested.
question
Suppose you play a round of golf costing $75. The golf takes four hours to play. If you were not playing golf, you could be working and earning $40 per hour. The opportunity cost of your golf game is what?
answer
$235 because $75 + $40 x 4 hours = $235.
question
What is true about positive statements in economics?
answer
They are statements that can use data and facts to confirm or refute.
question
A buyer has purchased three units of good X. The marginal benefit of the fourth unit of X exceeds the marginal cost of the fourth unit of good X. Why should buyers purchase the fourth unit?
answer
1. The marginal net benefit of the fourth unit is positive.
2. Buying the fourth unit will increase total benefits by more than total costs.
2. Buying the fourth unit will increase total benefits by more than total costs.
question
According to the theory of comparative advantage, what is not a reason why countries trade?
answer
Exports give a country a political advantage over other countries that export less.
question
According to the theory of comparative advantage, what are the reasons why countries do trade?
answer
1. Comparative Advantage
2. Costs are higher in one country than in another
3. The productivity of labor differs across countries and industries.
2. Costs are higher in one country than in another
3. The productivity of labor differs across countries and industries.
question
If one country has a bigger opportunity cost (smaller number when divided) over another country what advantage do they have?
answer
They have the comparative advantage.
question
Does a decrease in quantity demanded shift the curve?
answer
No, it only results in movement along the curve, but it doesn't shift the curve.
question
An increase in demand results in what?
answer
An outward shift of the demand curve.
question
What happens to the demand of a substitute if there is an increase in the price of the substitute?
answer
There will be a decrease in the demand of substitute.
question
What happens when there is an increase in the production cost?
answer
It will decrease the supply and results in leftward shift of supply curve.
question
If there is a decrease in income for airline companies and lesser number of bookings, what will happen to the demand for airplanes?
answer
The airline companies will lower their demand and will cause an inward shift of the demand curve.
question
What happens to the equilibrium when there is inward shifting of the demand curve?
answer
There will be a decrease in the equilibrium price and equilibrium quantity.
question
What does input mean on the PPF graph?
answer
anything used to produce output
question
What does output mean on the PPF graph?
answer
goods and services produced
question
How do you find the opportunity cost of a good?
answer
X = # of Y that cannot be produced / # of X that can be produced
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