Microeconomics: Basic Economic Concepts Flashcards

A straight-line (linear) production possibilities curve between two goods suggests that:

Answer: Resources are perfectly adaptable between the two goods

A linear PPC implies constant opportunity costs, which occurs when resources are equally productive in producing both goods.

Economic growth is best represented on a production possibilities curve by:

Answer: An outward shift of the entire curve

Economic growth means an economy can produce more of both goods, which is shown by an outward shift of the entire PPC.

The three basic economic questions that all societies must answer are:

Answer: What to produce, how to produce it, and for whom to produce it?

Every economic system must answer what goods to produce, how to produce them, and who receives the output.

In a command economy, the basic economic questions are answered primarily by:

Answer: Central government planning and directives

In a command economy, the government centrally plans and directs what, how, and for whom goods are produced.

Which of the following would cause the production possibilities curve to shift inward (toward the origin)?

Answer: A destructive earthquake that destroys capital and infrastructure

An earthquake that destroys capital reduces the economy's productive capacity, shifting the PPC inward.

If a nation has an absolute advantage in producing all goods, it should still specialize and trade because:

Answer: Specialization based on comparative advantage increases total output

Even if one nation is more productive in all goods, specializing in goods with lower opportunity costs and trading increases total production for all parties.

Which factor of production is best described as 'the ability to organize the other factors of production to create goods and services'?

Answer: Entrepreneurship

Entrepreneurship involves organizing land, labor, and capital to produce goods and services, often accepting risk in pursuit of profit.