1.1 - 1.3 Flashcards
Scarcity
Limited AND wanted
Leads to trade-offs
Opposite of abundance
Resource
Something used to produce something else
Factors of production
Land, labor, capital, entrepreneurship
Land
Natural resources, land AND whatever’s on it
Paid for through rent
Labor
Workers as a group
Paid for through wages
Types of capital
Physical, human, financial
Physical capital
Machinery, equipment, things that produce other things
Human capital
What workers are capable of
Intellect, ability, skills
Financial capital
Money
Paid for through interest
Entrepreneurship
Ability to solve problems through other factors
Risk-taking, decision-making
Paid for through profit
Opportunity Cost (OC)
Highest-valued alternative to a decision
What could have been; what’s being lost
Production Possibilities Curve (PPC)
Simplified model of an economy producing only 2 goods
For plotting potential output
Can show curve for changing OC, line for constant OC
Absolute advantage
A producer is able to produce more than another producer w/ same time/resources
Comparative advantage
A producer can produce a good at a lower OC than another producer
More efficiency in production of a certain good
Formulas for OC of A
Input: A/B
Output: B/A
Terms of trade
Agreed-upon exchange rate for two goods
Mutually beneficial terms of trade
Exchange rate for one good falls between OCs of that good
Productive efficiency
Not wasting resources
Avoiding mistakes and improper resource use
Allocative efficiency
Producing the right combination of goods
Meeting people’s needs
