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Econ exam 2

Terms in this set (45)

What does increasing marginal costs mean?
Increasing the production of a good requires larger and larger decreases in the production of another good
What would increasing marginal cost look like on a PPF?
Bowed outward
Production Possibilities Frontier (PPF)
A curve showing maximum attainable combinations of two products that may be produced with available resources and current technology
absolute advantage
The ability to produce more of a good or service than competitors using the same amount of resources.
comparative advantage
The ability to produce a good or service at a lower opportunity cost than other producers.
what is the basis for trade?
comparative advantage
how can a country gain from specialization and trade?
A country can specialize in producing that for which it has a comparative advantage and then trade for other needed goods and services.
copyrights are a "tax" on readers in the sense that
copyrights limit the supply of related creative work which results in higher prices
Since copyrights are a "tax" on readers, governments provide a legal framework to enforce them because
copyrights provide needed protection for authors and creators of movies or other artistic works
examples of intellectual property
books, films, software, ideas for new products
government seeks to protect intellectual property rights by granting
copyrights and patents
property rights
rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it
according to adam smith, what is necessary for the proper functioning of the market system
for markets to work, people must be free to pursue their self-interest
what is the instrument that the invisible hand uses to direct economic activity
prices
role of an entrepreneur
bring together factors of production, operate a business, take risks
what is the outcome of enforcing contracts and property rights
increased economic activity
what is necessary for the enforcement of contracts and property rights
an independent court system
marginal benefit
additional benefit of producing one more unit
why is the demand curve referred to as a marginal benefit curve?
it shows the willingness of consumers to purchase a product at different prices
marginal cost
the additional cost of producing one more unit
why is the supply curve referred to as a marginal cost curve?
it shows the willingness of firms to supply a product at different prices
consumer surplus
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays
as the price of a good rises, consumer surplus__________ and as the price falls, consumer surplus__________
decreases
increases
producer surplus
the difference between the lowest price a firm would be willing to accept and the price it actually receives
as the price of a good rises, producer surplus_________ and as the price falls, producer surplus________
increases
decreases
price ceiling
legally determined maximum price that sellers may charge
price floor
legally determined minimum price that sellers may receive
consumer and producer surplus measures the
net benefit
economic efficiency
- a market outcome in which the sum of consumer surplus and producer surplus is at a maximum.
- a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production
economics define economic efficiency to
-help policymakers understand negative consequences of price floors/celings and taxes
-to illustrate the benefits of a competitive market equilibrium
economic surplus
sum of consumer surplus and producer surplus
when gov imposes price floors or price ceilings
some people win, some lose, and there is a loss of economic efficiency
tax incidence
the actual division of the burden of a tax
For the US economy, imports and exports represent a _________ fraction of GDP compared to 40 years ago
larger
How important is international trade to the United States?
In the US, imports are smaller fractions of GDP than in most other countries
tariff
a tax imposed by a government on imports of a good into a country
imports
goods and services bought domestically but produced in other countries
exports
goods and services produced domestically but sold to other countries
a country will always be an exporter of a good where it has a ___________ advantage in production
comparative
What type of groups would most likely not benefit from trade
the workers and the companies in the industries that compete with the imports
who is harmed when individual nations move from autarky to free trade
the owners of the firms that went out of business
why do countries not completely specialize?
-not all goods are traded internationally
-tastes for products differ
-production if most goods involves increasing opportunity costs
quota
a numerical limit a government imposes on the quality of a good that can be imported into a country
voluntary export restraint
an agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from another country
test Q: GDP includes the value of household production (true or false)
false
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