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Microeconomics Chapter 2

Terms in this set (49)

What is the production possibilities frontier (PPC)?
A curve showing all combinations of two goods that can be produced with the resources and technology currently available.
Society's choices are limited to points on or inside what?
The production possibilities frontier
According to _______________, the more of something we produce, the greater the opportunity cost of producing even more of it.
The Law of Increasing Opportunity Cost
What cause the production possibilities frontier to have a concave (upside-down bowl) shaped, becoming steeper as we move rightward and downward.
The Law of Increasing Opportunity Cost
Why does opportunity costs increase as we move along the PPF?
Because most resources-- by their very nature-- are better suited to some purposes than to others.
Does the law of increasing opportunity cost apply in both directions of the PPF?
Yes.
The more of something we produce, the greater the opportunity of producing still more.
True.
Who described the idea of opportunity cost as "there is no such thing as a free lunch?" His point is that society uses up recourses to provide "free" things.
Milton Friedman
Why are we producing inside the PPF?
--Resources are not being used in a productive or efficient way.
--Mismatch of workers and jobs.
--Recession: a slowdown in overall economic activity
A firm, an industry, or an entire economy is _______________ if it could produce more of at least one good without producing less of any other good.
Productively inefficient
How does productive capacity grow?
--By increasing available resources
--technological change
What resource has contributed most to rising living standards?
Capital
How can having more tractors and new farming techniques enable us to produce more tanks?
The shifted resources can be used to increase tank production.
A _____________ change or an increase in __________, even when the direct impact is to increase production of just one type of good, allows us to choose greater production of all types of goods.
technological change, resources
What roles does capital play in the economy?
It is a resource that we use to produce goods and services. On the other hand, it is itself a good and is produced using resources.
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