Economics Homework 1 Flashcards

Questions and Answers

What is a critical function of the government in facilitating the operation of a market economy?

setting up and enforcing private property rights

A decrease in the unemployment rate may be represented as a movement from a point inside the production possibilities frontier to a point on the frontier.

True

A production possibilities frontier with a ____ shape indicates increasing opportunity costs as more and more of one good is produced.

bowed outward

What does Adam Smith's concept refer to when individuals acting in their own self-interest bring about a market outcome that benefits society?

invisible hand Signup and view all the answers

What can cause an outward shift of a nation's production possibilities frontier?

an increase in the labor force Signup and view all the answers

As job opportunities for women increase, the opportunity cost of doing housework has ___, leading many families to hire specialists.

increased Signup and view all the answers

As job opportunities for women increase, the cost of hiring specialists is ___ than the cost of traditional housework.

lower Signup and view all the answers

If Carmelita performs 35 manicures and 70 pedicures, what is the opportunity cost of performing an additional 15 manicures?

25 pedicures Signup and view all the answers

What does comparative advantage mean?

the ability to produce a good or service at a lower opportunity cost than any other producer Signup and view all the answers

How is economic growth represented on a production possibilities frontier model?

shifting outward Signup and view all the answers

Which country has the comparative advantage in wine if Italy can produce a bottle of wine giving up 10 pounds of cheese and France gives up 25 pounds of cheese?

Italy Signup and view all the answers

If property rights are not well enforced, a significant number of people will be willing to risk their funds by investing them in local businesses.

False Signup and view all the answers

According to economic reasoning, if the best lawyer in town is also the best at operating a word processor, they should specialize in what?

being a lawyer because its opportunity cost is lower Signup and view all the answers

If the production possibilities frontier is linear, then opportunity costs are constant as more of one good is produced.

True Signup and view all the answers

Can individuals who have never been the best at doing anything have a comparative advantage?

yes Signup and view all the answers

What was published in 1776 and written by Adam Smith?

An Inquiry into the Nature and Causes of the Wealth of Nations Signup and view all the answers

Specializing in the production of a good where one has a comparative advantage enables a country to do what?

consume a combination of goods that lies outside its own production possibilities frontier Signup and view all the answers

What is the opportunity cost of going to college this term if tuition is $5000, room and board is $3000, books are $500, and potential earnings are $10000?

$11,500 Signup and view all the answers

What is the opportunity cost of taking an online history class?

equal to the highest value of an alternative use of time and money spent on the class Signup and view all the answers

How would the recession of 2007-2009 be represented in a production possibilities frontier graph?

a point inside the frontier Signup and view all the answers

What does the slope of a production possibilities frontier measure?

opportunity cost Signup and view all the answers

To increase gas mileage, auto manufacturers make cars small and light. Large cars yield lower gas mileage, suggesting a positive relationship exists between safety and gas mileage.

False Signup and view all the answers

Which of the following is a factor of production?

an acre of forested land Signup and view all the answers

Without technological advancement, how can a nation achieve economic growth?

through an increase in supplies of factors of production Signup and view all the answers

An outward shift of a nation's production possibilities frontier represents ___ economic growth.

economic growth Signup and view all the answers

Adam Smith's ___ behavioral assumption about humans suggests that people usually act in a rational, self-interested way.

behavioral assumption Signup and view all the answers

Study Notes

Government and Market Economy

A critical government role in a market economy is setting up and enforcing private property rights.

Unemployment and Production Possibilities

A decrease in the unemployment rate can move the economy from inside the production possibilities frontier to a point on the frontier.

Production Possibilities Frontier (PPF)

A bowed outward shape of a PPF indicates increasing opportunity costs as production shifts between goods.

Adam Smith's Concepts

Adam Smith introduced the "invisible hand," describing how self-interested individuals can lead to socially beneficial market outcomes.

Factors Influencing Growth

An increase in the labor force can cause an outward shift of a nation’s production possibilities frontier.

Opportunity Costs in Housework

With rising job opportunities and wages for women, the opportunity cost of doing housework has increased, leading many families to hire specialists for household chores at lower costs.

Opportunity Cost Calculation

For Carmelita, the opportunity cost of performing 15 additional manicures is 25 pedicures.

Comparative Advantage

Comparative advantage exists when a producer can create a good or service at a lower opportunity cost than others.

Economic Growth Representation

Economic growth on a PPF model is shown by the production possibility frontier shifting outward.

Comparative Advantage Example

Italy has a comparative advantage in wine production compared to France, which trades off more cheese for wine.

Property Rights and Investment

Poor enforcement of property rights can discourage investment in local businesses.

Specialization for Efficiency

The best lawyer should specialize in law since it has a lower opportunity cost compared to operating a word processor.

Linear PPF Implications

A linear production possibilities frontier indicates constant opportunity costs as production levels change.

Comparative Advantage for All

Individuals who are not the best at anything can still have a comparative advantage in certain productions.

Adam Smith's Publication

In 1776, Adam Smith published "An Inquiry into the Nature and Causes of the Wealth of Nations."

Specialization Benefits

Specializing in a good or service where there is a comparative advantage allows a country to consume beyond its production possibilities frontier.

College Opportunity Cost

The opportunity cost of attending college includes tuition, room, board, books, and the foregone salary, totaling $11,500.

Opportunity Cost of Classes

The opportunity cost of taking an online history class equates to the highest value of alternative uses for the time and money spent on it.

Recession Representation

The 2007-2009 recession can be illustrated as a point inside the production possibilities frontier.

PPF Slope Significance

The slope of a production possibilities frontier reflects the opportunity cost of producing an additional unit of a good.

Safety and Gas Mileage Relationship

There is no positive relationship between the size of cars and gas mileage; it is false that larger cars yield better gas mileage.

Factors of Production

An acre of forested land is classified as a factor of production.

Economic Growth Without Technology

Nations can achieve economic growth without technological advancements by increasing the supply of production factors.

Economic Growth Indicator

An outward shift of a nation's production possibilities frontier signifies economic growth.

Rational Economic Behavior

Adam Smith's behavioral assumption was that individuals act in rational, self-interested ways.

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Test your understanding of key economic concepts with these flashcards covering fundamental ideas in market economy and production possibilities. Perfect for reviewing essential terms and true/false questions essential for Economics students.