Chapter 2 Flashcards
Opportunity Cost
The value of the best alternative forgone when an item or activity is chosen
Sunk Cost
A cost that has already been incurred in the past, cannot be recovered, and thus is irrelevant for the present and future economic decisions
Barter
The direct exchange of one good for another without using money
Absolute Advantage
The ability to produce something using fewer resources than other producers are
Division of Labor
Organizing production of a good into its separate tasks
Specialization of Labor
Focus on work effort on a particular product or a single task
Law of Comparative Advantage
The individual, firm, region, or country with the lowest opportunity cost of producing a particular good should specialize in that good
Comparative Advantage
The ability to produce something at a lower opportunity cost that other producers fave
Ex. England producing Cloth and Portugal producing Wine
Production Possibilities Frontier (PPF)
A curve showing the alternative combinations of goods that can be produced when available resources are used fully and efficiently
Efficiency
The condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another good
Law of Increasing Opportunity Cost
To produce each additional increment of a good, a successively larger increment of an alternative good must be sacrificed if the economy’s resources are already being used efficiently
Law of Increasing Opportunity Cost
To produce each additional increment of a good, a successively larger increment of an alternative good must be sacrificed if the economy’s resources are already being used efficiently
Economic Growth
An increase in the economy’s ability to produce goods and services; an upward shift of the PPF
Pure Capitalism
An economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets
Ex. New Zealand, operated by Democracy
Private Property Rights
An owner’s right to use, rent, or sell resources or property
Mixed System
An economic system characterized by the private ownership of some resources and the public ownership of other resources; some markets are unregulated and others are regulated
Ex. Socialism
Pure Command System
An economic system characterized by the public ownership of resources and centralized parking
Ex. Communism
Convergence Theory
Theory by Clark Kerr stating that as nations transition from the beginning stages of industrialization to highly industrialized nations, the same societal patterns will emerge, eventually creating a global culture
Sole Proprietorship
A firm with a single owner who has the right to all profits and who bears unlimited liability for the firm’s debts; most important form in the sheer number of firms
Partnership
A firm with multiple owners who share the firm’s profits and bear unlimited liability for the firm’s debts
Corporation
A legal entity by stockholders whose liability is limited to the value of their stock; important in terms of total sales
Cooperative
An organization of people who pull their resources to buy and sell more efficiently then they could individually
Firms
Economic units formed by profit-seeking entrepreneurs who use resources to produce goods and services for sale
Non-profit Institutions
Groups that do not pursue profit as a goal; they engage in charitable, educational, humanitarian, cultural, professional, or other activities, often with a social purpose
