Chapter 2: Choice in a World of Scarcity Flashcards
Budget Contraint
All possible consumption combinations of goods someone can afford (assuming all income spent), given the prices of goods
Law of Diminishing Marginal Opportunity
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
Utility
Satisfaction from one’s consumer choices
Opportunity Cost
Measures cost by the value what is given up in exchange
Opportunity Set
All possible combinations of consumption someone can afford, given prices of goods and the individual’s income
Sunk Costs
Costs that are made in the past and cannot be recovered
Marginal Utility
Additional utility provided by one additional unit of consumption
Budget Constraint Line
Maps possible combinations of 2 goods that are affordable given a customer’s limited income
Law of Diminishing Returns
As additional increments of resources are added to producing a good or service, marginal benefit from those increments will decline
Comparative Advantage
When a country can produce a good at lower cost in terms of other goods
Allocative Efficiency
When the mix of goods being produced represents the mix that society most desires
Productive Efficiency
When it is impossible to produce more of one good or service without decreasing the quantity produced of another
Invisible Hand
Idea that self-interested behavior by individuals can lead to positive social outcomes