Microeconomics: Basic Economic Concepts Flashcards
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A student chooses to attend college instead of working full-time. The opportunity cost of attending college is best represented by:
Answer: The wages foregone from not working full-time
Opportunity cost is the value of the next best alternative foregone, which in this case is the wages the student could have earned working full-time.
Which of the following best illustrates the economic concept of scarcity?
Answer: A hospital cannot treat all patients due to limited staff and equipment
Scarcity occurs when limited resources cannot satisfy all human wants, as illustrated by a hospital unable to treat all patients with limited staff and equipment.
On a production possibilities curve (PPC), a point located inside the curve indicates:
Answer: Productive inefficiency or unemployed resources
A point inside the PPC represents productive inefficiency, meaning resources are unemployed or being used ineffectively.
Comparative advantage differs from absolute advantage in that comparative advantage is based on:
Answer: Having lower opportunity costs of production
Comparative advantage is based on lower opportunity costs, not on producing the most output, which is absolute advantage.
If Country A can produce either 100 units of wheat or 50 units of cloth, and Country B can produce either 60 units of wheat or 60 units of cloth, which country has a comparative advantage in cloth?
Answer: Country B, because the opportunity cost of cloth is lower
Country B gives up 1 unit of wheat per unit of cloth, while Country A gives up 2 units of wheat per unit of cloth, so Country B has the lower opportunity cost for cloth.
The law of increasing opportunity costs states that as an economy produces more of one good:
Answer: The opportunity cost of producing each additional unit rises
Resources are not perfectly adaptable between uses, so as production of one good increases, increasingly less suitable resources must be redirected, raising opportunity costs.
Which of the following is an example of a normative economic statement?
Answer: The government should raise taxes on the wealthy to reduce income inequality
Normative statements involve value judgments about what should be, while positive statements describe what is or what will happen.