Chapter 3 Key Terms Flashcards
Resources
the instruments provided by nature or by people that are used to create goods and services.
Opportunity cost
the value of the next best alternative that a decision forces the decision maker to forgo
Optimal decision
a decision that best serves the objectives of the decision maker, whatever those objectives may be (it doesn’t mean that the observer or analyst approves or disapproves of the objective itself); selected by explicit or implicit comparison with the possible alternative choices
Outputs
the goods or services produced by a firm or an economy
Inputs
the labor, raw materials, electricity and other resources a firm or economy used to produce its outputs
Production possibilities frontier
the different combinations of various goods, any one of which a producer can turn out, given the available resources and existing technology
Principle of increasing costs
the principle that as the production of a good expands, the opportunity cost of producing another unit generally increases
Efficiency
the absence of waste; when there is no way given current technological knowledge that one can produce larger amounts of any output without using larger input amounts or giving up some quantity of another output
Allocation of scarce resources
society’s decisions on how to divide up its scarce input resources among the different outputs produced in the economy and among the different firms or other organizations that produce these outputs
Division of labor
breaking up a task into a number of smaller, more specialized tasks so that each worker can become more adept at a particular job
Comparative advantage
one country has a ________________ over another in the production of a particular good relative to other goods if it produces that good less inefficiently than it produces other goods, as compared with the other country
Market system
a form of economic organization in which resource allocation decisions are left to individual producers and consumers acting in their own best interests without central direction
Natural resources (examples)
minerals, soil, water and air
Factors of production (inputs)
land (natural resources), labor (a scarce resource) and capital
