Chapter 1: Micro Flashcards
Choice
A selection among alternative goods, services, or actions
Command economy
An economy in which the government determines prices and production; also called a centrally planned economy
Comparative advantage
A situation in which a person or group can produce one good at a lower opportunity cost than another person or group
Division of labor
The division of production into various parts in which different groups of workers specialise
Economic interactions
Occur every time people trade or exchange goods with each other. • take place in a market
Economics
People make purposeful choices with scarce resources and interact with others when they make these choices
Financial crisis
Disruptions to financial markets which make it difficult for people and business firms to borrow and obtain loans
Freely determined prices
Prices that are determined by the individuals and firms interacting in markets
Gains from trade
Improvements in income, production, or satisfaction owing to the exchange of goods or services
Government Failure
The situation in which the government fails to improve on the market or even makes things worse
Incentive
A device that motivates people to take action. usually to increase economic efficiency
Increasing opportunity costs
A situation in which producing more of one good requires giving up an increasing amount of production of another good
International Trade
The exchange of goods and services between people or firms in different nations
Market
an arrangement by which buyers and sellers can interact and exchange goods and services with each other
Market economy
An economy characterised by freely determined prices and the free exchange of goods and services in markets
Market failure
Any situation in which the market does not lead to an efficient economic outcome and in which the government has a potential role
Opportunity cost
The value of the next-best forgone alternative that was not chosen because something else was chosen
Production possibilities
Alternative combinations of production of various goods that are possible, given the economy’s resources
Production Possibilities curve
A curve showing the maximum combinations of production of two goods that are possible, given the economy’s resources (diagram p.11)
Property rights
Rights over the use, sale and proceeds from a good or resource
Recession
A decline in production and employment that lasts for 6 months or more
Scarcity
a situation in which people’s resources are limited
Specialisation
A concentration of production effort on a single specific task
