Economists use the term utility for the satisfaction a person gets from consuming goods and services.
Missing Word
utility
Utility is the benefit or satisfaction from consumption. It is subjective, and people choose among goods in ways that make their total satisfaction as large as their budget allows.
Category: Utility
Question 2
Money already spent that cannot be recovered is a sunk cost, and it should not affect decisions about the future.
Missing Word
sunk
A sunk cost has already been paid and stays paid whatever choice comes next. Sound decisions compare only future benefits and costs.
Category: Opportunity Cost
Question 3
Every trade-off along a production possibilities frontier stems from scarcity, the condition in which wants exceed the resources available to satisfy them.
Missing Word
scarcity
Scarcity means human wants are greater than the resources available to meet them. Because a society cannot have unlimited amounts of everything, producing more of one good along the frontier means producing less of the other.
Category: Production Possibilities
Question 4
On a graph of the combinations a consumer can afford, the slope of the line, ignoring its negative sign, equals the price of the horizontal-axis good divided by the price of the vertical-axis good.
Missing Word
slope
The slope of a budget line measures how much of the vertical-axis good must be given up to buy one more unit of the horizontal-axis good. It is set by the ratio of the two prices.
Category: Budget Constraint
Question 5
All the combinations of goods a person can afford when spending the entire income at given prices make up that person's budget constraint.
Missing Word
budget
A budget constraint marks the boundary of what a person can buy: it shows every combination that uses up the whole income at the given prices. Points inside it are affordable with money left over, and points beyond it cannot be bought.
Category: Budget Constraint
Question 6
Even without more workers or machines, a society can shift its production frontier outward through better technology, the know-how for turning inputs into output.
Missing Word
technology
Technology is the knowledge of how to combine inputs to make goods and services. Better technology lets the same resources produce more, which is a source of economic growth.
Category: Production Possibilities
Question 7
Machines, tools, and buildings that are used to produce other goods are called capital.
Missing Word
capital
Capital refers to produced goods, such as equipment and factories, used to make other goods and services. Adding capital is one way an economy grows and its frontier shifts outward.
Category: Production Possibilities
Question 8
Among the resources a society uses for production, labor refers to the work effort that people supply.
Missing Word
labor
Labor is the human effort that goes into production. Together with land, capital and raw materials, it limits how much a society can produce.
Category: Production Possibilities
Question 9
When a society cannot make more of one good without making less of another, it has achieved productive efficiency.
Missing Word
productive
Productive efficiency means no resources are being wasted. Every point on a production possibilities frontier meets this condition, while points inside it do not.
Category: Efficiency
Question 10
When a society produces the mix of goods on its frontier that its members most want, it has achieved allocative efficiency.
Missing Word
allocative
Allocative efficiency concerns choosing the right mix of goods, not only producing without waste. Which mix is best depends on what society values.
Category: Efficiency
Question 11
A country that gives up less of other goods to produce a particular good than another country does has a comparative advantage in that good.
Missing Word
comparative
Comparative advantage is based on what a producer gives up, not on how much it can make. Specializing according to comparative advantage and trading raises total output.
Category: Comparative Advantage
Question 12
A country that can produce more of a good than another country using the same resources has an absolute advantage in that good.
Missing Word
absolute
Absolute advantage compares how much each producer can make with equal resources. A country can have an absolute advantage in a good yet still gain by importing it.
Category: Comparative Advantage
Question 13
A standard production possibilities frontier shows the combinations of exactly 2 goods that a society can produce with its available resources.
Missing Word
2
A production possibilities frontier is drawn with one good on each axis, so it compares 2 goods, such as healthcare and education. Each point on the curve is a combination the society can make when it uses its resources fully.
Category: Production Possibilities
Question 14
The surname of the Scottish thinker who wrote that self-interested people are often led by an invisible hand to promote the good of society is Smith.
Missing Word
Smith
Adam Smith, author of The Wealth of Nations, argued that people pursuing their own gain can benefit society without intending to. In The Theory of Moral Sentiments he also stressed that people care about others, so self-interest is not the whole of human motivation.
Category: Positive and Normative
Question 15
Economists measure the cost of a choice by the value of the next best alternative given up, which they call its opportunity cost.
Missing Word
opportunity
Opportunity cost counts what a choice really costs: the value of the best option that had to be passed up. It can include time and forgone earnings as well as money, which is why the opportunity cost of college includes the pay a student gives up.
Category: Opportunity Cost