Chapter 2 Flashcards
capital
Things that are produced and then used in the production of other goods and services.
factors of production
The inputs into the process of production. Another term for resources.
production
The process that transforms scarce resource into useful goods and services.
inputs/resources
Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants.
outputs
Goods and services of value to households
theory of comparative advantage
Ricardo’s theory that specialization and trade will benefit all trading parties, even those that may be “absolutely” more efficient producers.
absolute advantage
When a producer can produce a product using few resources.
comparative advantage
When a producer can produce a product at a lower opportunity cost.
consumer goods
goods produced for present consumption
investment
The process of using resources to develop new capital
production possibility frontier (ppf)
A graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently.
marginal rate of transformation (MRT)
The slope of the ppf
economic growth
An increase in the total output of an economy. Growth occurs when a society acquires new resources or when it learns to produce more with existing resources.
command economy
An economy in which central government either directly or indirectly sets outputs targets, incomes, and prices.
laissez-faire economy
An economy in which individual firms people and firms pursue their own self-interest, without any central direction or regulation
