Title: Economics Chapters 1-4 Flashcards | Quizlet
Headings: Economics Chapters 1-4
Economics Chapters 1-4
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THIS SET IS OFTEN IN FOLDERS WITH...
Econ Test 1
Chapter 2 Homework
Chapter 3 Homework
AP Economics Ch. 26 & 27

Content: Adam Smith is
considered the founder of economics
A variable measures
something that can take on different values
Ceteris paribus is the Latin expression meaning
other variables are held fixed
To think at the margin means to consider
how a small change in one variable affects another variable
Microeconomics is best described as the study of
the choices made my individual households, firms, and governments
Microeconomic analysis can be used to
better understand how markets work, make personal or managerial decisions, and evaluate the merits of public policies
Macroeconomics is best described as the study of
the nation's economy as a whole
The opportunity cost of something is
what you sacrifice to get it
The principle of opportunity cost
is applicable to all decision-making
The opportunity cost of going to college
includes wages you lose by going to school instead of working
The principle of opportunity cost is related to
scarcity
The period of time over which a firm can change all the factors of production is the
long run
According to the principle of diminishing returns, if all factors of production but one are held constant and if that one factor is doubled, then eventually output will most likely
less than double
Spending money on a fixed budget is an example of
the principle of opportunity cost
The saying that: " There is no such thing as a free lunch" refers to
the principle of opportunity cost
If an economy is fully utilizing its resources, it can produce more of one product only if it
produces less of another product
If you remove resources from factory production, the quantity of factory goods will
decrease
The extra benefit resulting from a small increase in an activity is called the
marginal benefit
The additional cost resulting from a small increase in some activity is called the
marginal cost
The principle that individuals and firms pick the activity level where the incremental benefit of that activity equals the incremental cost of that activity is known as the
marginal principle
When people act in their own self interest, it is described as the
principle of voluntary exchange
The principle of diminishing returns implies that as one input increases while the other inputs are held fixed, output
increases at a decreasing rate
The principle that "as one input increases while the other inputs are held fixed, output increases at a decreasing rate" is known as the
principle of diminishing returns
The period of time over which one or more factors of production is fixed is the
short run
A firm produces its product using both capital and labor. When it does not change its capital usage, but doubles its labor input, its output increases by less than 50%. What is the most likely explanation of this? The principle of diminishing returns
According to the principle of diminishing returns, if the number of workers is increased beyond the point of diminishing returns, then the additional worker
increases total output by less than the amount of previous workers
The principle of diminishing returns occurs
only in the short run
The face value of money or income is called its ______
real value
The real value of money
reflects the purchasing power of the sum of money
The principle of diminishing returns doesn't apply to labor in the long run because
a firm can build an additional production facility so each worker's share of the facility doesn't necessarily decrease
Diminishing returns occurs because
one of the inputs to the production process is fixed
The principle that what matters to people is the real value or purchasing power of money is the
real-nominal principle
If real salaries decrease but nominal salaries do not, this means that
prices have risen
In modern economies, individuals in markets make most of the decisions about
what to produce, how to produce, and for whom to produce
The more times a worker performs a particular task, the more proficient the worker becomes at that task. This is called
repetition
A specialized worker doesn't spend time switching from one task to another. This is called
continuity
When a specialized worker gains insights into a particular task that leads to better production methods it is called
innovation
The theory of comparative advantage states that
specialization and free trade will benefit all trading partners
The production advantage enjoyed by one country over another when it uses fewer resources to produce a product than another country is
an absolute advantage
According to the theory of comparative advantage, a country
exports the goods in which it has a comparative advantage
Country A has a comparative advantage over Country B in the production of shoes if
Country A can produce shoes at a lower opportunity cost than Country B can
According to the theory of comparative advantage a country should
specialize and export goods with the lowest opportunity cost
When one country can produce a product at a lower opportunity cost in terms of other goods, that country is said to have
A comparative advantage
Markets work better thanks to the invention of
contracts, insurance, patents
Under a market economy, decisions are guided by
prices
Entrepreneurs are driven by
prices and profits
Pollution is an example of market failure because
polluters may be able to avoid bearing the full cost of their decisions
How can a government make markets more efficient? by protecting private property
The ability of one person or nation to produce a good at a lower absolute cost than another is called
absolute advantage
Trade results from
comparative advantage
A rich nation will trade with a poor nation because the
poor nation has the comparative advantage in a product
How do governments intervene in international trade? They erect barriers to trade through and other restrictions
For Country A, an export is a good produced in
Country A and purchased by residents in Country B
When the government helps to enforce contracts
people trade with more confidence and so markets operate efficiently
Most economies have what economists call
mixed economies
In the US, the primary responsibility for paving highways and running colleges and universities rests with
state government
A change in the quantity demanded of a product is the result of a change in
the price of the product
A demand curve is defined as the relationship between
the price of a good and the quantity of that good that consumers are willing to buy
The law of demand states that the quantity demanded of a product increases as
the price of the product falls
The substitution effect of a price change implies that as the price of a good falls, people are like to
buy more of a good
A supply curve is defined as the relationship between
the price of a good and the quantity that producers are willing to sell
The law of supply states that
firms supply more of a product as the price of the product rises
Suppose that the quantity supplied of pizza exceeds the quantity demanded for pizza. We would expect that
the price of pizza will decrease
The income effect of a price change implies that
as the price of a good falls, people are likely to buy more of all normal goods
Suppose that bananas and apples are normal goods, and that the price of bananas falls.