AP Microeconomics: Choice in a World of Scarcity flashcards

Question 1

What does opportunity cost measure?

Accepted Answer

The value of the alternative that is given up when a choice is made.

Question 2

What is a budget constraint?

Accepted Answer

The set of all consumption combinations a person can afford at given prices when all income is spent.

Question 3

What is the opportunity set?

Accepted Answer

Every combination of goods someone can afford, given prices and the person's income.

Question 4

What determines the slope of a budget constraint?

Accepted Answer

The relative prices of the goods.

Question 5

Are choices beyond the budget constraint affordable?

Accepted Answer

No. Combinations beyond the budget constraint cannot be afforded.

Question 6

Besides money, in what else can opportunity cost be measured?

Accepted Answer

Time, or the actual resources that must be given up.

Question 7

What is marginal analysis?

Accepted Answer

Weighing small step changes, a bit more or a bit less, relative to where you are now.

Question 8

What does the law of diminishing marginal utility say?

Accepted Answer

As you consume more of a good, each extra unit tends to give less utility than earlier units did.

Question 9

What is utility?

Accepted Answer

The satisfaction, usefulness or value a person gets from consuming goods and services.

Question 10

What are sunk costs?

Accepted Answer

Costs incurred in the past that cannot be recovered.

Question 11

Should sunk costs be considered in current decisions?

Accepted Answer

No, they should be disregarded because they cannot be recovered.

Question 12

What does the production possibilities frontier (PPF) show?

Accepted Answer

The efficient combinations of two products an economy can make with its available resources.

Question 13

What does a PPF take as given?

Accepted Answer

The resources and technology available to society.

Question 14

What is true of choices outside the PPF?

Accepted Answer

They are unattainable.

Question 15

What is true of choices inside the PPF?

Accepted Answer

They are wasteful.

Question 16

What shape does a PPF typically have?

Accepted Answer

It is typically curved outward rather than straight.

Question 17

What tends to happen to the PPF over time in a growing economy?

Accepted Answer

It tends to shift outward.

Question 18

What is productive efficiency?

Accepted Answer

A situation where more of one good cannot be produced without producing less of another.

Question 19

What is allocative efficiency?

Accepted Answer

Producing the mix of goods that society most wants.

Question 20

Which kind of efficiency does every point on a PPF display?

Accepted Answer

Productive efficiency.

Question 21

What is comparative advantage?

Accepted Answer

Being able to produce a good at a lower opportunity cost than others.

Question 22

What is a positive statement?

Accepted Answer

A statement describing the world as it is.

Question 23

What is a normative statement?

Accepted Answer

A statement describing how the world should be.

Question 24

What did Adam Smith's invisible hand idea claim?

Accepted Answer

That self-interested behavior by individuals can lead to good outcomes for society.

AP Microeconomics: Choice in a World of Scarcity flashcards

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