Chapter 2: Trade-offs, Comparative Advantage, and the Market System Flashcards
scarcity
a situation in which unlimited wants exceed the limited resources available to fulfill those wants
production possibilities frontier (PPF)
a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
opportunity cost
the highest-valued alternative that must be given up to engage in an activity
economic growth
the ability of the economy to increase the production of goods and services
trade
the act of buying and selling
absolute advantage
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
comparative advantage
the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors
market
a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
product market
a market for goods - such as computers - or services - such as medical treatment
factor market
a market for the factors of production, such as a labor, capital, natural resources, and entrepreneurial ability
factors of production
the inputs used to make goods and services
circular flow diagram
a model that illustrates how participants in markets are linked
free market
a market with few government restriction on how a good or service can be produced or sold or on how a factor of production can be employed
entrepreneur
someone who operates a business, bringing together the factors of production - labor, capital, and natural resources - to produce goods and services
property rights
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it
