ECON 2020 Quiz 1

Economics

the study of how people make choices when resources are limited

opportunity cost=

true cost

Why do opportunity costs arise?

scarce resources

Marginal

additional or one more unit

Marginal decision

compares the additional benefit of doing something with the additional cost

Microeconomics

studies individual decision-making

Macroeconomics

studies the economy as a whole

(micro/macroeconomics) households

micro

(micro/macroeconomics) Firms

micro

(micro/macroeconomics) Industries

micro

(micro/macroeconomics) Individual markets

mico

(micro/macroeconomics) National Income

macro

(micro/macroeconomics) Employment

macro

(micro/macroeconomics) Output

macro

(micro/macroeconomics) Overall prices

macro

Positive economics

• describes the world using facts and evidence

• can be evaluated using data

Normative economics

• describes using opinions, values, or judgements about what is good or desirable

• cannot be settled by facts alone

Production Possibilities Frontier (PPF)

Shows the max combinations of 2 goods or services that can be produced with available resources and technology

Points on the PPF are

efficient

Points inside the PPF are

inefficient

Points outside the PPF are

unattainable

Describe: A, B, C

efficient

Describe: D

inefficient

Describe: F

unattainable

Linear PPF means

constant opportunity cost

Bowed-out PPF means

increasing opportunity cost

What does movement along the PPF show?

trade-off

outward PPF shift

Economic growth, better technology, more resources

inward PPF shift

Natural disasters, war, loss of resources

Absolute advantage

ability to produce more of a good using the same amount of resources

Comparative advantage

the ability to produce a good at a lower opportunity cost

what is trade based on? (absolute/comparative advantage)

comparative advantage

Opportunity cost formula

(what is given up)/(What is gained)

For a trade to benefit both parties

trade price must fall between opportunity costs