vocab unit 1-3 Flashcards
The ability to produce a good at a lower opportunity cost than another producer.
Comparative Advantage
The ability to produce a good using fewer inputs than another producer.
Absolute advantage
Whatever must be given up to obtain some item. It measures the trade-off between the two goods that each producer faces.
opportunity cost
Goods produced abroad and sold domestically. (a good or service bought in one country that was produced in another.)
Imports
Goods produced domestically and sold abroad. (good produced in one country and sold to buyers in another)
Exports
states that each good should be produced by the individual that has the lower opportunity cost of producing that good.
Principle of Comparative advantage
Economic assumptions provide a way to allow economists to simplify the complex world.
Assumption
is a Latin phrase meaning “other things equal.” Economists use this phrase to mean “if other conditions are the same.”
Ceteris paribus
assumption simplifies reality by assuming a location where there are only two goods capable of being produced and/or consumed.
Two good world
assumption simplifies reality by assuming that the model only involves two people or two countries who can produce and consume the goods/services in question.
Two country world
is the study of “what is.” It is descriptive and can be tested with data. However, it doesn’t have to be a true fact.
Positive analysis
is the study of “what ought to be.” It is judgmental, prescriptive, and reflects someone’s opinion rather than a fact.
A normative analysis
people face trade offs
principle 1
The cost of something what you give up to get it
principle 2
rational people think at the margin
principle 3
people respond to incentives
principle 4
trade can make everyone better off
principle 5
market are usually a good way to organize economic activity
principle 6
government can sometime improve market outcomes
principle 7
A country’s standard of living depends on its ability to produce goods and services
principle 8
price rises when the government prints to much money
principle 9
society faces short run tradeoff between inflation and unemployment
principle 10
the property of a resource allocation of maximizing the total surplus received by all members of society.
efficiency
the property of distributing economic prosperity uniformly among the members of society,
equality
people who systematically and purposefully do the best they can to achieve their objectives.
rational people
a small incremental adjustment to a plan of action
marginal change
something that induces a person to act
incentive
an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
market economy
the ability of an individual to own and exercise control over scarce resources
property rights
a situation in which a market left on its own fails to allocate resource efficiently
market failure
the uncompensated impact of one persons actions on the well being of a bystander
externality
the ability of a single economic actor to have substantial influence on market prices.
market power
the quantity of goods and services produced from each unit of labor input.
productivity
fluctuations in economic activity such as employment and production.
business cycle
