Chapter 2 - Trade-offs, Comparative Advantage, and the Market System Flashcards
Production possibilities frontier (PPF)
A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
Economic growth
The ability of an economy to produce increasing quantities of goods and services.
What are the 5 factors of production?
Labour Capital Natural resources Entrepreneurs Information
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 potential trading partners, 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 potential trade partners.
What is the basis for trade?
Comparative advantage
Circular-flow diagram
A model that illustrates how participants in markets are linked.
Entrepreneur
Someone who operates a business, bringing together factors of production-labour, capital, natural resources, and information to produce goods and services.
Free market
A market with few government restrictions on how goods or services can be produced or sold, on who can buy or sell them, or how factors of production can be employed.
Factor market
A market for the factors of production.
Product market
A market for 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.
