Chapter 2 Flashcards
Production possibilities frontier (PPF)
The boundary between those combinations of goods and services that can be produced and those that cannot.
Production efficiency
If we produce goods and services at the lowest possible cost.
Production efficiency on the production possibilities frontier
- Production inside the PPF is ineffiecient because resources are either unused or misallocated
- Production on the PPF is efficient.
Opportunity cost
The highest-value alternative forgone for that action to be taking place.
Opportunity cost as a ratio
The decrease in the quantity produced of one good divided by the increase in the quantity produced of another good.
Allocative efficiency
When goods and services are produced at the lowest possible cost AND in the quantities that provide the greatest possible benefit.
Marginal cost
The opportunity cost of producing one more unit of a good concerned.
Marginal benefit
The benefit received from consuming one more unit of a good concerned.
Marginal benefit curve
A curve that shows the relationship between the marginal benefit from a good and the quantity consumed of that good
Economic growth
The expansion of production possibilities
Technological change
The development of new goods and of better ways of producing goods and services.
Capital accumulation
The growth of capital resources, including human capital.
Comparative advantage
An advantage in an activity that a person can perform at a lower opportunity cost than anyone else.
Absolute advantage
An activity in which a person is more productive than others.
Firm
Economic unit that hires factors of production and organizes them to produce and sell goods and services.