Chapter 2 – Flashcard Answers
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The economic principle that states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost is
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the law of comparative advantage
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A point on the production possibilities curve represents a combination of goods that is
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Efficient
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What is the opportunity cost of choosing an alternative?
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The value of the highest valued alternative forgone as the result of the choice.
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Which of the following is true of a production possibilities curve?
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It reveals the maximum amount of any two goods that can be produced from a fixed quantity of resources.
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Which of the following is true of the production possibilities curve?
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It assumes a fixed level of technology
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Why is specialization in production beneficial?
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It permits people to expand production and achieve rates of output that would otherwise be unattainable.
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Which of the following is the best definition of opportunity cost?
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The value of the best alternative not chosen
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Which of the following do private property rights involve?
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The right to exclusive use of the property. Legal protection against those who would seek to use or abuse the property without the owner's permission. The right to transfer, sell, exchange, or mortgage the property.
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A point inside the production possibilities curve represents a combination of goods that is
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Inefficient
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In economics, what are transaction costs?
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The time, effort, and other resources needed to search out and negotiate an exchange
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Which of the following is true when collective decision making is utilized to resolve economic questions regarding the allocation of resources?
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The role of markets will be replaced by political decision making.
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Which of the following activities describes the opportunity cost of watching a play in a theater?
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the value of the highest valued alternative that must be forgone because of the time and money required to watch the play
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As a general rule, what impact does technological progress have on a PPC?
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It shifts the production possibilities curve outward, away from the origin.
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If Sean sells Tom a tennis racket for $50, we would expect
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both parties to gain from this transaction.
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Sally wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Sally is currently spending all of her time efficiently, Sally can spend more time studying this week only if
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she spends less time doing other things.
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If Harry Bartolini's Ford dealership sells Rosa Brown a new automobile for $30,000, economic analysis indicates that
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both parties to the transaction will gain.
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Which of the following activities describes the opportunity cost of attending an economics class?
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the value of the highest valued alternative that must be forgone because of attending the class
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Which of the following is a private owner prohibited from doing?
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using the property in a manner that invades or infringes on the property of another
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A form of economic organization that relies primarily on private ownership of productive assets, freedom of exchange, and market prices to allocate goods and resources is often called
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capitalism
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Which of the following will most likely occur under a system of clearly defined and enforced private property rights?
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Resource owners will conserve vital resources for the future, particularly if they expect the resource to increase in value
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Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, it would be reasonable to conclude that
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Florida has a comparative advantage in producing oranges.
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The law of comparative advantage implies that a nation, individual, or region should trade for those economic goods for which it
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is a high opportunity cost producer
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A system of economic organization in which the ownership and control of productive capital assets rests with the state and in which resources are allocated through central planning and political decision making is called
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socialism.
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When private ownership rights are well-defined and enforced, owners of physical assets and resources will have an incentive to do which of the following?
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Consider the wishes of others before using their resources.
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The law of comparative advantage explains which of the following?
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Specialization and exchange will make it possible for trading partners to expand their combined output.
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Using a production possibilities curve, a technological advance that increases the amount of output for both goods while using the same amount of inputs would be illustrated by which of the following?
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An outward shift of the curve.
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Which of the following most accurately states the economic significance of exchange?
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Exchange creates value by moving goods from parties who value them less to parties who value them more.
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Other things constant, which of the following would you expect to increase the output growth rate of a country?
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An increase in the rate of investment as a share of total output
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Which of the following will be most likely to cause the production possibilities curve for a country to shift inward?
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a decrease in the stock of physical capital
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