Ecc Chapter 2

Front 1

Production Possibilities Frontier

Back 1

The boundary between those combinations of good that can be produces and those that cannot

Front 2

What limits the quantities of goods and services we can produce?

Back 2

-available natural resources

-current technology

Front 3

How does the PPF illustrate scarcity?

Back 3

We cannot attain the points outside the frontier - these points describe the wants that cannot be satisfied

Front 4

When is production efficency reached?

Back 4

When we produce goods and services at the lowest possible cost

Front 5

On which point(s) if the PPF is production efficency reached?

Back 5

All of the points on the PPF

Front 6

Why do we sometimes produce goods inside the PPF?

Back 6

Unused resources

Misallocated resources

Front 7

Opportunity cost

Back 7

The highest-valued alternative forgone

Front 8

Show opportunity cost as a ratio

Back 8

Op Cost = - good 1 / + good 2

Front 9

How is the opportunity cost of producing one good on the PPF related to the opportunity cost of producing another good on that PPF?

Back 9

Inversely

Front 10

How does the opportunity cost change as we try to produce more and more of a specific good?

Back 10

It increases

Front 11

Why does the opportunity cost increase as we try to produce more and more of a resource? And give an example to explain.

Back 11

The additional resources we use to produce that good are less productive.

E.g. If we produce more pizzas, we will run out of pizza-makers and start having to use cooldrink-makers who are not as good at making pizzas.

Front 12

Which point of the PPF is best?

Back 12

The point on the PPF at which goods and services are produces in quantities that provide the greatest possible benefit.

Front 13

Allocafive efficency

Back 13

When goods and services are produced at the lowest possible cost and in quantities that provide the greatest possible benefit.

Front 14

Marginal cost

Back 14

The opportunity cost of producing one more unit of a good

Front 15

With what do we calculate marginal cost?

Back 15

The slope of the PPF.

The steeper it is, the greater the marginal cost is.

Front 16

Describe the graph of marginal cost vs quantity of a good produced.

Back 16

Increasing straight line graph

Front 17

Marginal benefit

Back 17

The benefit derived from consuming one more unit of a good

Front 18

Marginal benefit curve

Back 18

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

Unrelated to PPF.

Front 19

What is the Principle of Decreasing Marginal Benefit?

Back 19

The idea that the more units of a good or service we have, the less willing we are to pay for an additional unit of it.

Front 20

Why does the Principle of Decreasing Marginal Benefit arise?

Back 20

We like variety

Front 21

Describe a graph of marginal benefit vs quantity of a great od consumed

Back 21

Decreasing straight line graph

Front 22

Where do we reach allocative efficiency?

Back 22

Where marginal cost = marginal benefit

Front 23

Economic growth

Back 23

The expansion of production possibilities

Front 24

What is the tradeoff we face to make the economy grow?

Back 24

The faster we make production grow, the greater is the opportunity cost of economic growth

Front 25

What brings economic growth?

Back 25

Technological change

Capital accumulation

Front 26

What is the opportunity cost involved in economic growth?

Back 26

If we use our resources to develop new technologies and produce capital, we must decrease our production of consumption goods and services. We must rather produce capital goods.

Front 27

What is the term for when someone/something produces only one good or a few goods?

Back 27

Specialisation

Front 28

Comparative advantage

Back 28

A person can perform an activity at a lower opportunity cost than anyone else.

Front 29

What does comparative advantage arise from?

Back 29

Differences in individual abilities and in the characteristics of other resources

Front 30

Absolute advantage

Back 30

A person who is more productive than others

Front 31

How do you achieve gains from trade?

Back 31

Specialise in the good in which you have a comparative advantage

Front 32

Name two economic coordination systems

Back 32

Central economic planning

Decentralised markets

Front 33

Why does central economic planning work badly?

Back 33

Government economic planners do not know people's production possibilities and preferences

Front 34

Which 4 social institutions does decentralised coordination need?

Back 34

Firms

Markets

Property rights

Money

Front 35

Firm

Back 35

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

Front 36

Market

Back 36

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

Front 37

Property rights

Back 37

The social arrangements that govern ownership, use, and disposal of anything that people value

Front 38

Real property

Back 38

Land, buildings, plant equipment, etc

Front 39

Financial property

Back 39

Stocks, bonds, money

Front 40

Intellectual property

Back 40

The intangible product of creative effort (books, music, computer programs, inventions)

Front 41

Why are property rights necessary?

Back 41

Without them, more resources would be used on protecting assets than producing assets

Front 42

Money

Back 42

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

Front 43

Draw the circular flows through markets

Back 43

Front 44

How do markets coordinate decisions?

Back 44

Through price adjustments