Microeconomics: Basic Economic Concepts Flashcards

A technological improvement that only affects the production of consumer goods (not capital goods) would most likely cause the PPC to:

Answer: Rotate outward along the consumer goods axis only

A technology improvement in only one sector rotates the PPC outward along the axis of the good that benefits, not the entire curve.

The term 'trade-off' in economics refers to:

Answer: Giving up one thing to obtain something else

A trade-off involves sacrificing one alternative when choosing another, reflecting the scarcity that forces choices.

In economics, a 'model' is best described as:

Answer: A simplified representation of reality used to analyze economic behavior

Economic models are simplified representations that highlight key relationships while abstracting away less important details.

Which of the following best describes a 'mixed economy'?

Answer: An economy where both private markets and government play significant roles

A mixed economy combines private market activity with government intervention, which is the system most modern economies use.

If an economy moves from a point inside its PPC to a point on the PPC, this most likely indicates:

Answer: Improved efficiency or reduction in unemployment

Moving from inside the PPC to the curve means the economy is using its existing resources more fully or efficiently, not that productive capacity has grown.

Which of the following is NOT a factor of production?

Answer: A $100 bill

Money is not a factor of production; it is a medium of exchange used to purchase factors like land, capital, labor, and entrepreneurship.

Suppose a baker can make 20 loaves of bread or 10 cakes per hour. The opportunity cost of producing one cake is:

Answer: 2 loaves of bread

To produce 10 cakes the baker gives up 20 loaves, so each cake costs 2 loaves of bread in opportunity cost.