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.
Market
Any arrangement that enables buyers and sellers to get information and to do business with each other.
Property rights.
The social arrangements that govern the ownership, use and disposal of anything that people value
Real property
Includes land, buildings and durable goods such as plant and equipment
Financial property
Stocks and bonds and money in the bank
Intellectual property
the intangible product of creative effort.
Money
Any commodity or token that is generally acceptable as a means of payment
The production possibilities frontier
The boundary between production levels that are attainable and those that are not attainable when all the available resources are used to their limit.
The opportunity cost of all goods increases as the production of the good…
increases
Allocative efficiency
When goods and services are produced at the least possible cost and in the quantities that bring the greatest possible benefit.
Resources are used efficiently when the marginal…
Marginal benefit = marginal cost
The opportunity cost of economic growth
forgone current consumption
The benefit of economic growth
increased future consumption
