Chapter 2
Economic resources or Factors of production – workers, capital, natural resources, and entrepreneurial
ability, used to make goods and services.
Time is scarce. Households and firms make many of their decisions in markets. Trade is a key activity
that takes place in markets.
Production Possibilities Frontier – A curve showing the maximum attainable combinations of two
products that may be produced with available resources and current technology.
For everything you gain, you’re losing one of something. Ex. – Using more resources to make more
hybrids, you’re making less SUVs.
As the economy moves down the production possibilities frontier, it experiences
increasing marginal opportunity costs because increasing automobile production by a given
quantity requires larger and larger decreases in tank production. Increasing marginal opportunity
costs occur because some workers, machines, and other resources are better
suited to one use than to another.
The more resources already devoted to an activity, the smaller the payoff
to devoting additional resources to that activity – ex. The more hours you put spending studying econ, is
the increase of your grade every hour spent. And the greater the opportunity cost.
Economic growth - The ability of the
economy to increase the production
of goods and services.
Trade - The act of buying and selling.
Absolute advantage - The ability of
an individual, a firm, or a country to
produce more of a good or service
than competitors, using the same
amount of resources.
Comparative advantage. - The ability of an individual,
a firm, or a country to produce a good or service at a
lower opportunity cost than competitors. In our example,
your neighbor has a comparative advantage in
picking cherries, but you have a comparative advantage
in picking apples.
Market - A group of buyers and
sellers of a good or service and the
institution or arrangement by which
they come together to trade.
Product market - A market for
goods—such as computers—or
services—such as medical treatment.
Factor market - A market for the
factors of production, such as labor,
capital, natural resources, and
entrepreneurial ability
Factors of production - The inputs
used to make goods and services.
Circular-flow diagram - A model that
illustrates how participants in markets
are linked.
Free market - A market with few
government restrictions on how a
good or service can be produced or
sold or on how a factor of production
can be employed.
Households supply labor and other factors of production in exchange for wages and other
payments from firms. In product markets, households use the payments they earn in
factor markets to purchase the goods and services supplied by firms. Firms produce
these goods and services using the factors of production supplied by households.
Property rights - The rights
individuals or firms have to the
exclusive use of their property,
including the right to buy or sell it

Question 1
0 out of 4 points
Figure 2-4
Figure 2-4 shows various points on three different production possibilities frontiers for a
nation.
Refer to Figure 2-4. Consider the following events:
Which of the events listed above could cause a movement from V to W ?
Correct Answer:
a only

Question 2
4 out of 4 points
In economics, choices must be made because we live in a world of
Correct Answer:
scarcity.

Question 3
4 out of 4 points
A production possibilities frontier with a bowed outward shape indicates
Correct Answer:
increasing opportunity costs as more and more of one good is produced.

Question 4
4 out of 4 points
The production possibilities frontier shows the ________ combinations of two products that
may be produced in a particular time period with available resources.
Correct Answer:
maximum attainable

Question 5
4 out of 4 points
Markets promote
Correct Answer:
competition and voluntary exchange.

Question 6
4 out of 4 points
Economists assume that rational people do all of the following except
Correct Answer:
undertake activities that benefit others and hurt themselves.

Question 7
0 out of 4 points
Households
Correct Answer:
sell resources in the factor market.

Question 8
4 out of 4 points
Scarcity
Correct Answer:
stems from the incompatibility between limited resources and unlimited wants.

Question 9
0 out of 4 points
Figure 2-4
Figure 2-4 shows various points on three different production possibilities frontiers for a
nation.
Refer to Figure 2-4. Consider the following events:
Which of the events listed above could cause a movement from Y to W ?
Correct Answer:
c only

Question 10
4 out of 4 points
Figure 2-4
Figure 2-4 shows various points on three different production possibilities frontiers for a
nation.
Refer to Figure 2-4. Consider the following movements:
Which of the movements listed above represents economic growth?
Correct Answer:
b and c only

Question 11
4 out of 4 points
The slope of a production possibilities frontier
Correct Answer:
measures the opportunity cost of producing one more unit of a good.

Question 12
4 out of 4 points
Adam Smith's invisible hand refers to
Correct
Answer:

the process by which individuals acting in their own self-interest bring about a
market outcome that benefits society as a whole.
Question 13
0 out of 4 points
Figure 2-5
Refer to Figure 2-5. If the economy is currently producing at point W, what is the
opportunity cost of moving to point X?
Correct Answer:
5 million tons of paper

Question 14
4 out of 4 points
An example of a factor of production is
Correct Answer:
a worker hired by Dell.

Question 15
0 out of 4 points
Figure 2-2
Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation
that produces two goods, meat and vegetables.
Refer to Figure 2-2. Suppose Mendonca is currently producing 60 pounds of vegetables per
period. How much meat is it also producing, assuming that resources are fully utilized?
Correct Answer:
75 pounds of meat

Question 16
4 out of 4 points
The basic economic problem of ________ has always existed and will continue to exist.
Correct Answer:
scarcity

Question 17
4 out of 4 points
The principle of opportunity cost is that
Correct
Answer:

the economic cost of using a factor of production is the alternative use of that
factor that is given up.
Question 18
0 out of 4 points
In the circular flow model, producers
Correct Answer:
hire resources sold by households in the factor market.

Question 19
4 out of 4 points
All of the following are part of an economic model except
Correct Answer:
opinions.

Question 20
0 out of 4 points
Figure 2-4
Figure 2-4 shows various points on three different production possibilities frontiers for a
nation.
Refer to Figure 2-4. A movement from Y to Z
Correct Answer:
is the result of advancements in plastic production technology.

Question 21
4 out of 4 points
The production possibilities frontier model shows that
Correct
Answer:

if all resources are fully and efficiently utilized, more of one good can be
produced only by producing less of another good.
Question 22
0 out of 4 points
Figure 2-4
Figure 2-4 shows various points on three different production possibilities frontiers for a
nation.
Refer to Figure 2-4. Consider the following events:
Which of the events listed above could cause a movement from W to V?
Correct Answer:
a and c only

Question 23
4 out of 4 points
Economists assume that rational behavior is useful in explaining choices people make
Correct Answer:
even though people may not behave rationally all the time.

Question 24
4 out of 4 points
Economic models do all of the following except
Correct Answer:
portray reality in all its minute details.

Question 25
4 out of 4 points
Which of the following is a normative economic statement?
Correct Answer:
The price of gasoline is too high.
Tuesday, January 20, 2015 8:04:35 PM EST