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Ch. 2-Confronting Scarcity: Choices in Production
N/A
20
Economics
Undergraduate 1
03/13/2015

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Term
Production Possibilities Model
Definition
A model that shows the goods and services that an economy is capable of producing—its possibilities—given the factors of production and the technology it has available.
Term
Economic System
Definition
The set of rules that define how an economy’s resources are to be owned and how decisions about their use are to be made.
Term
Factors of Production
Definition
The resources available to it for the production of goods and services.
Term
Utility
Definition
The value, or satisfaction, that people derive from the goods and services they consume and the activities they pursue.
Term
Labor
Definition
The human effort that can be applied to the production of goods and services.
Term
Capital
Definition
A factor of production that has been produced for use in the production of other goods and services.
Term
Human Capital
Definition
The skills a worker has as a result of education, training, or experience that can be used in production.
Term
Financial Capital
Definition
Includes money and other “paper” assets (such as stocks and bonds) that represent claims on future payments.
Term
Technology
Definition
The knowledge that can be applied to the production of goods and services.
Term
Entrepreneur
Definition
A person who, operating within the context of a market economy, seeks to earn profits by finding new ways to organize factors of production.
Term
Production Possibilities Curve
Definition
A graphical representation of the alternative combinations of goods and services an economy can produce.
Term
Comparative Advantage
Definition
In producing a good or service, the situation that occurs if the opportunity cost of producing that good or service is lower for that economy than any other.
Term
Law of Increasing Opportunity Cost
Definition
As an economy moves along its production possibilities curve in the direction of producing more of a particular good, the opportunity cost of additional units of that good will increase.
Term
Full Employment
Definition
Situation in which all the factors of production that are available for use under current market conditions are being utilized.
Term
Efficient Production
Definition
When an economy is operating on its production possibilities curve.
Term
Inefficient Production
Definition
Situation in which the economy is using the same quantities of factors of production but is operating inside its production possibilities curve.
Term
Specialization
Definition
Situation in which an economy is producing the goods and services in which it has a comparative advantage.
Term
Market Capitalist Economy
Definition
Economy in which resources are generally owned by private individuals who have the power to make decisions about their use.
Term
Command Socialist Economy
Definition
Economy in which government is the primary owner of capital and natural resources and has broad power to allocate the use of factors of production.
Term
Mixed Economies
Definition
Economies that combine elements of market capitalist and of command socialist economic systems.
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