Questions and Answers
What is opportunity cost best defined as?
The term opportunity cost refers to the:
What would an economist say about your 'gain' on a used car purchase?
Both you and the seller have gained something.
If trade between two countries is voluntary, one can expect that:
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The dramatic increase in the standard of living since the Industrial Revolution has meant unlimited abundance for societies.
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Why is economics considered a social science rather than a 'hard' science?
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What is abstraction in economics?
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A useful economic model may make realistic assumptions in order to simplify complex reality.
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If a curve has a slope equal to zero at some point A, what may occur to the right of A?
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A line that rises at a 45-degree angle has a slope of:
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How may an 'opportunity cost' be described?
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Which of the following is an example of a fiscal policy initiative?
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What is the opportunity cost to you of an action?
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What is the opportunity cost of any good or service?
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What does the principle of comparative advantage explain?
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In the scenario where Tammy is a country singer and Bob can plow, who should specialize in which task?
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Why might both the United States and Mexico benefit from trade in automobiles and computers?
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What does the law of comparative advantage explain?
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Study Notes
Opportunity Cost
- Opportunity cost is the value of what must be given up to acquire an item.
- It represents what is forgone when making a choice.
- Example: If you buy a car, the opportunity cost is what you could have purchased instead.
Gains from Trade
- In voluntary trade between countries, both sides expect to gain something.
- Mutual benefits can arise even when one country is more productive in all goods.
Economic Growth
- The rise in living standards since the Industrial Revolution has not resulted in unlimited abundance for individuals or societies.
Economics as a Social Science
- Economics is classified as a social science due to its focus on human behavior, influenced by numerous unpredictable factors.
Abstraction in Economics
- Abstraction involves omitting unnecessary details to better understand complex situations in economics.
Economic Models
- Useful economic models might make unrealistic assumptions to simplify complex realities for better analysis.
Slope and Curves
- A curve with a zero slope at point A may have various behaviors to the right of A.
- A line rising at a 45-degree angle has a slope of 1, indicating a proportional relationship.
Fiscal Policy
- An example of fiscal policy is a reduction in taxes, illustrating government actions to influence the economy.
Next Best Alternative
- The opportunity cost of an action is the value of the next best alternative that could have been taken.
Comparative Advantage
- The principle of comparative advantage explains that nations can trade beneficially even when one is more productive overall.
- Specialization based on comparative advantage leads to more efficient outcomes; for example, Tammy should specialize in singing due to her exceptional talent, while Bob should plow.
Benefits of Trade
- The law of comparative advantage allows for beneficial trade between nations, regardless of their levels of productivity or economic development.
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Description
This quiz focuses on the key concepts from Chapter 1 of ECO210, including definitions and explanations of opportunity cost. It's designed to help you grasp the fundamentals of economic decision-making and the trade-offs involved. Test your understanding of these essential economic principles.