Macro Chapter 2 – Flashcards
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Transaction costs
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reduce the gains from trade; they will decrease the amount of voluntary trades
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Middlemen _________ the gains from trade (by reducing transaction costs) and, thus, create value
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increase
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Private rights
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allow the right of exclusive use, the right to protect and the right to transfer or sell the property
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common rights
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allow multiple people to claim ownership rights
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Why are property rights are so important?
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because they create incentives to protect and conserve resources, and distribute them to people who value them the most
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Production Possibility Curve?
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Shows the maximum combinations of two goods that can be produced from a set of fixed resources.
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On a PPC,
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you can only produce more of one good if you produce less of the other
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Outward shift
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A technological advance that increases output with the same amount of inputs would be represented
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Why is the PPC usually blowed out?
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because of the law of increasing opportunity cost...meaning the more of good A you want, the more of good B you ave to give up (or the more good B you want, the more good A you have to give up
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What factors shift the PPC out?
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1. An increase in resources 2. Improving technology 3. Improving legal systems in order to allow resources to be utilized most efficiently 4. Work harder (less leisure)
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How does specialization and division of labor lead to higher output levels and living standards?
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An individual that focuses on one specific task instead of a series of tasks can become very good at his job.
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Gains from specialization and trade will be achieved when individuals are allowed to pursue their own
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self-interest
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Specialization allows individuals, businesses, and countries to achieve output levels and growth that would be
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unattainable otherwise
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What is the law of comparative advantage?
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The law states that in order to maximize output, individuals should produce the goods for which they have the lowest opportunity cost.
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The law of comparative advantage implies what?
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that an individual should trade for those economic goods for which it is a high opportunity cost producer.
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What is the significance of comparative advantage?
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low opportunity cost leads to comparative advantage which allows individuals, companies, and countries to specialize in a particular product or service. this process allows individuals, companies, and countries to trade those products and services to increase their wealth.
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Which of the following is/are true regarding trade? i. Trade will always create value ii. Transaction costs are eliminated with the use of middlemen. iii. Transaction costs are measured in dollars.
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none of the above
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Private rights will
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i. give owners the incentive to protect and conserve it for the future ii. give owners the incentive to use their property in ways that can make them the most profit. iii. Give owners the incentive to reduce the amount of harm that their property may have on others.
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A point located on the PPC is considered to be
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...
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A point located inside the PPC is considered to be
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...
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Which of the following is a transaction cost?
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time spent standing in line to buy the ticket
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Which of the following is true?
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The value of a good generally depends on who uses it and circumstances such as when and where it is used
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The opportunity cost of building a park in your hometown would be the
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highest valued bundle of other goods and services that ust forgone because of the park construction
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In voluntary exchange, if the seller of a product gains,
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the buyer must also gain; mutual gain provides the foundation for exchange
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When Benjamin Franklin wrote, "Remember that time is money!" he understood
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the concept of opportunity cost
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A nation that protects its workers from unemployment by limiting the use (by employers) of technological improvements will
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grow less rapidly because technological change is an important factor contributing to the growth of output
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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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For most students attending state universities, the largest cost component of going to college is
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the opportunity cost in terms of forgone current income from the time spent attending college
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The law of comparative advantage suggests that
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countries will tend to import commodities that they can produce at a relatively high opportunity cost
