Chapter 2: Choice in a World of Scarcity Flashcards

1
Q

Budget Contraint

A

All possible consumption combinations of goods someone can afford (assuming all income spent), given the prices of goods

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2
Q

Law of Diminishing Marginal Opportunity

A

As we consume more of a good or service, the utility we get from additional units tend to become smaller than the utility of earlier units

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3
Q

Utility

A

Satisfaction from one’s consumer choices

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4
Q

Opportunity Cost

A

Measures cost by the value what is given up in exchange

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5
Q

Opportunity Set

A

All possible combinations of consumption someone can afford, given prices of goods and the individual’s income

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6
Q

Sunk Costs

A

Costs that are made in the past and cannot be recovered

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7
Q

Marginal Utility

A

Additional utility provided by one additional unit of consumption

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8
Q

Budget Constraint Line

A

Maps possible combinations of 2 goods that are affordable given a customer’s limited income

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9
Q

Law of Diminishing Returns

A

As additional increments of resources are added to producing a good or service, marginal benefit from those increments will decline

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10
Q

Comparative Advantage

A

When a country can produce a good at lower cost in terms of other goods

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11
Q

Allocative Efficiency

A

When the mix of goods being produced represents the mix that society most desires

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12
Q

Productive Efficiency

A

When it is impossible to produce more of one good or service without decreasing the quantity produced of another

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13
Q

Invisible Hand

A

Idea that self-interested behavior by individuals can lead to positive social outcomes

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