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64 Cards in this Set

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ECONOMICS CHAPTER 2
ECONOMICS CHAPTER 2
Define self-sufficiency
use the limited resources that you possess to produce the goods and services that you want to consume.
Name some advantages of self-sufficiency:
Don't have to worry about unemployment since you work for yourself. No need for $ since you don't trade w/others. Inflation is no concern
What are some problems with self-sufficiency
yields low stardard of living. limited resources and using resources that are not well suited.
Define comparative advantage
able to produce a good or service at a lower opportunity cost than other producers. Leads to more productive use of resources and higher standard of living.
Define consumer's surplus
the difference between the highest price a buyer is willing to pay and the price actually paid
What is the benefit received by the 2 parties to a trade?
the net benefit the buyer receives from a trade is called consumer's surplus
What is the net benefit the seller receives from a trade?
producer's surplus
Define producer's surplus
the difference between the lowest price a seller is willing to accept and the price actually received
What is the net benefit to both the buyer and the seller in a trade
the sum of the consumer's surplus and the producer's surplus received by the buyer and the seller
What is the net benefit to society of having a market available for trading
the sum of the consumer's surplus and the producer's surplus received by all the buyers and the sellers in the market
Define Externality
a benefit or a cost of an activity that affects third parties
Give an example of positive externality
Pam gets a flu shot, so not only does she avoid the flu but also doesn't pass it to others.
Give an example of negative externality
Pam buys a new CD and enjoys the music but if she plays it too loudly, others may suffer
Define Production Possibilities Frontier (PPF)
represents the maximum combinations of 2 goods that an economy can produce
Give an example of PPF using only 2 goods; coconuts and fish. Give 6 combinations
Combination Coconuts Fish
A 0% 100%
B 20% 80%
C 40% 60%
D 60% 40%
E 80% 20%
F 100% 0%
Define law of increasing opportunity cost
as production of a good increases the opportunity cost of producing that good increases
When is an economy operating efficiently
when it is producingthemaximum output w/the available resources and technology. An efficient economy can produce more of one good only by producing less of another
What direction is the PPF shifted when economic growth occurs
outward: economic growth is an increase in teh productive capacity of an economy
List some possible specific causes of economic growth
increase in size of the labor force, increase in human capital, improvements in physical capital, improved production techiniques
Discuss an increase in the quantity of resources as it pertains to sources of economic growth
an increase in the quanitity of labor, land, capital, or entrepreneurship increases productive capacity
Discuss an advane in technology as it pertains to sources of economic growth
technological advance is the ability to produce more output per resource. The increased output per resource increases productive capacity
What are the 2 primary economic systems
capitalism and socialism
Discuss the 3 main points to capitalistic vision
1. private property is economically and politically desirable
2. Market prices contribute to economic efficiency
3. Government is inherently inefficient and should be limited
What is meant by private property is economically and politically desirable
it's desirable because it leads to the efficient use of resources. It is politically desirable because it contibutes to individual freedom.
What is meant by market prices contribute to economic efficiency
prices determined in free markets contribute to economic efficiency by providing information, incentives, and rationing
What is meant by government is inherently inefficient and should be limited
Govt cannot know as much info as the millions of individuals in private market. Therefor, govt intervention is likely to reduce economic efficiency
Discuss the 3 main points to socialistic vision
1. private property is economically and politically harmful. 2. Market prices are often mainipulated by powerful businessess. 3. government promotes the best interests of the general public
What is meant by private property is economically and politically harmful
some will accumulate more private property. It will be concentrated in the hands of a few. This contril allows the few to dominate politically and economically to disadvantage the masses. Instead of private ownershipm most resources should be owned or controlled by the govt
What is meant by market prices are often manipulated by powerful businesses
gig businesses face few competitors and manipulate prices and consumer demand. Govt should be willing to use price controls to ensure prices are fair for all
What is meant by government promotes the best interests of the general public
govt protects the masses from explitation by rich and big businesses that rich control. Govt should be large and strong enough to protect weak from the powerful
What 3 questions must every society answer concerning the allocation of resources and goods in the context of scarcity
1. What to produce
2. How to produce
3. For whom to produce
How is the question, what to produce, answered by societies
It is determined in a market economy driven by consumer demand. If more people buy candy bars than rice cakes, produce candy bars. Satisfy consumer demand
How is the question, how to produce, answered by societies
determined by the least cost method of production. They will try to satisfy consumer demand at the lowest possible cost of production.
How is the question, for whom to produce answered by societies
determined by the distribution of income. The distribution of income is determined by the markets for resources. If a person owns large resources, then thier profit should be higher
Fill in the blanks __________ surplus is the difference between the highest price a buyer is willing to pay and the price actually paid
consumer's
Fill in the blanks __________ surplus is the difference between the lowerst price a seller is willing to accept and the price actually received
producer's
Fill in the blanks __________ is a benefit or a cost of an activity that affects 3rd parties
externality
Fill in the blanks __________ frontier represents the maximum combinations of 2 goods that an economy can produce
production possibilities
Fill in the blank: the law of __________ ____________ cost says that as production of a good increases, the opportunity cost of producing that good increases
increasing opportunity
Fill in the blank: Economic __________ is an increase in the productive capacity of an economy
growth
Fill in the blank: Technological advance is the ability to produce more __________ per ____________
output, resource
When 2 parties voluntarily engage in a trade:
a. the buyer gains but the seller loses
b. the seller gains but the buyer loses
c. both parties expect to benefit from the trade
d. both parties will lose
c - both parties expect to benefit from the trade
Producing according to comparative advantage:
a. means producing where one has a lower opportunity cost than other producers
b. leads to a more productvie use of resources
c. leads to a higher standard of living
d. All of the above
d - all of the above
Millhouse is willing to pay $100 for the 1st issue of "Radioactive Man." If Millhouse buys a copy from Muntz for $60 he received consumer's surplus of:
a. $100
b. $60
c. $50
D. $80
c - $50
Kenneth is having a garage sale. If Ken is willing to sell his old table saw for $50 and manages to get $80 for it, he receives producer's surplus of:
a. $0
b. $30
c. $50
d. $80
b - $30
Xavier hires Yolanda to construct a rock garden in front of Xavier's house. The rock garden increases the value of Xavier's house and also increases the value of Xavier's neighbor Zelda's house. This is an example of:
a. producer's surplus
b. consumer's surplus
c. external benefit
d. external cost
c - external benefit
As production of a good increases:
a. the opportunity cost of producing the good will decrease
b. resources that are less well suited for producting the good will have to be used
c. both of the above
d. none of the above
b - resources that are less well suited for producting the good will have to be used
When an economy is operating efficiently:
a. it is operating inside its PPF
b. it is producing the maximum output with the available resources and technology
c. it can produce more of one good without producing less of another
d. all of the above
b - it is producing the maximum output with the available resources and technology
The production possibilities frontier is:
a. a boundary that cannot be crossed
b. bowed outward becaue of the law of increasing opportunity cost
c. both
d. none
c - both
Economic growth:
a. shifts the PPF inward
b. can only be caused by an increase in the quantity of resources
c. means that the law of increasing opportunity cost no longer applies
d. none
d - none
The capitalist vision sees private property as desirable because
a. private property leads to the efficient use of resources
b. private property allows the rich to dominate politically and economically
c. both
d. none
a - private property leads to the efficient use of resources
The capitalist vision sees market prices as
a. often manipulated by powerful businesses
b. contributing to economic efficiency
c. as harmful to indifvidual freedom
d. all of the above
d - all of the above
The socialist vision sees government ownership of resources:
a. as beneficial to the general public
b. as harmful to economic efficiency
c. as harmful to individual freedom
d. all of the above
a - as beneficial to the general public
The socialist vision sees market prices as:
a. providing infomration, incentives and rationing
b. often manipulated by powerful businesses
c. both
d. none
b - often manipulated by powerful businesses
The capitalist vision:
a. favors private ownership of resources
b. favors market determination of prices
c. favors limited government
d. all of the above
d - all
The socialist vision:
a. favors government ownership of resources
b. favors price controls to ensure fair prices
c. favors a large and powerful govt
d. all
d - all
In a market economy the question of how to produce is determined by:
a. consumer demand
b. the least cost method of production
c. the distribution of income
d. all
b - the least cost method of production
If the number of coconuts produced in this economy is increased from 40 to 70 this will cause:
a. a shift in the PPF
b. a movement along the PPF
c. both
d. none
b - a movement along the PPF
if an increase in th equantity of resources permits this economty to produce more of both cocnuts and fish, this will cause:
a. a shift in the PPF
b. a movement along the PPF
c. Both
d. None
a - a shift in the PPF
What are the 2 general sources of economic growth
1. an increase in teh quanitity of resources
2. An advance in technology
Explain the capitalist vision in regards to government
gvt is inherently ineffecient and should be limited. Cannot posses as much info as millions of individuals, nor motivated to secure the self-interest of millions. Since outcome reached in market is generally efficient, gvt intervention is likely to reduce economic efficiency
Explain the socialist vision in regards to market prices
market prices often manipulated by powerful businesses. Gvot should be willing to use price controls to ensure prices are fair for all
explain how the question of for whom to produce is determined in a market economy
determined by the distribution of income. The distribution of income is determined by markets for resources