Chapter 1&2 Flashcards
consumer goods
produced for present consumption
examples: food, entertainment, clothing
capital good
help produce other valued goods and services in the future
examples: roads, factories, trucks, and computers
investment
process of using resources to create or buy new capital
short run
period in which we make decisions that reflect our immediate short term wants, needs, or limitations.
-consumers can partially adjust their behavior
long run
period in which we make decisions that reflect our new, wants, and limitations over a long time
-consumer have to fully adjust to market conditions
competitive advantage
ability of an individual to do a particular economic activity (making a specific product) more efficiently than another activity
absolute advantage
the ability of one producer to Make more than another producer with the same quantity of resources
specialization
limiting of one’s work to a particular area
-enables workers to enjoy gains from trade
law of increasing opportunity cost
opportunity cost or producing a good rises as society produces more of it
production possibilities frontier (PPF)
model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently
-outcome is considered efficient when resources are fully utilized and potential output is maximized
endogenous factors
the variables that can be controlled for in a model
-know about and can control
exogenous factors
factors beyond our control- outside the model
ceteris paribus
means “other things being equal” or “all else equals” and is used to build economic models
- allows economists to examine a change in one variable while holding everything else constant
positive statement
can be tested and validated; it describes “what is”
normative statement
an opinion that cannot be tested or validated; describes “what ought to be”
trade
voluntary exchange of goods and services between two or more parties
comparative advantage
refers to the situation where am individual, business, or country can produce at a lower opportunity cost than a competitor can
double coincidence of wants
occur when each party in an exchange transaction has what the other party desires
markets
bring buyers and sellers together to exchange goods and services
barter
involves involuntary trading a good they already have or providing a service in exchange for something they want
circular flow
shows how resources and final goods and services flow through the economy
marginal thinking
requires decision makers to evaluate whether the benefit of one more unit of something is greater than its cost
opportunity cost
highest-valued alternative that must be sacrificed to get something else
incentives
factors that motivate a person to act or exert effort
