Econ A Study Guide #2

According to the Bureau of Labor Statistics, earning a bachelor’s degree boosted salaries by what percentage over what you would earn if you stopped after high school?

54%

A fundamental principle of economics is that every choice has a what?

Opportunity cost.

The first slice of pizza we eat bring more satisfaction than the sixth. This is an example of what law?

Law of diminishing marginal utility.

Costs that were incurred in the past and cannot be recovered are called what?

Sunk costs.

The production possibilities frontier is drawn with what type of line?

Curved line.

In a market economy with a democratic government, the choices a society makes along its production possibilities frontier are made by who?

Individuals, Firms, and Government.

In everyday usage, what word refers to a lack of waste?

Efficiency.

Why do countries tend to have different opportunity costs of producing a specific good?

Because of different climates, geography, technology, or skills.

When a country can produce more of a good than another country, this is known as what?

Absolute advantage.

When countries engage in trade, they specialize in the production of the goods in which they have what?

Comparative advantage.

Budget Constraint:

All possible consumption combinations of goods that someone can afford.

Marginal analysis:

Examination of decisions on the margin.

Law of diminishing marginal:

As we consume more of a good or service, the utility we get from additional units of the good or service tend to become smaller than what we receive from earlier units.

Law of diminishing returns:

As we add additional increments of resources to producing a good or service, the marginal benefit from those additional increments will decline.

Allocative efficiency:

When the mix of goods produced represents the mix that society most desires.

Opportunity cost:

Measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative.

Utility:

Satisfaction, usefulness, or value one obtains from consuming goods and services.

Production possibilities frontier (PPF):

A diagram that shows the productively efficient combination of two products that an economy can produce given the resources it has available.

Productive efficiency:

When it is possible to produce more of one good (or service) without decreasing the quantity produced of another good (or service).

Comparative advantage:

When a country can produce a good at a lower cost in terms of other goods; or, when a country has lower opportunity coast of production.

Every economy faces two situations in which it may be able to expand consumption of all goods. What are these two situations?

• A society that identifies inefficient resource use can enhance efficiency and move to the production possibilities frontier, allowing for increased output without reducing any goods.

• As resources increase over time, such as through more labor and capital, the economy grows, causing the production possibilities frontier to shift outward, enabling society to produce more goods.