Chapter 2: Trads Offs, Comparative Advanatges, 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
Opportunity cost
The highest valued alternative that must be given up to engage in activity.
School, work, sleep, drink
If I go to work school, my opportunity cost Is missing work
Allocative efficiency
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it
Economic growth
The ability of an economy to produce increasing quantities 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 potential trading partners, using the same amount of resources
Comparative advantage
The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than potential trading partners
Market
A group of buyers and sellers of a good or service and the institutions or arrangements by which they come together and trade
Product market
A market for goods, such as computers
Or services, such as haircuts
Factor market
A market for the factors of production, such as labour, capital, natural resources, and entrepreneurial ability
Entrepreneur
Someone who operates a business, bringing together factors of production, labour, capital, and natural resources, to produce goods and services
Circular flow diagram
A model that illustrates how participants in markets are linked
Free market
A market with few government restrictions on how goods/ services, can be produced or sold, on who can buy or sells food and services, or on how factors of production can be employed
Property rights
The rights individuals or firms have to the exclusive use of their property, including rights to buy or sell it
Factors of population
The inputs used to make goods and services
