Term
| Production possibilities frontier (PPF) |
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Definition
economic model; the boundary between those combinations of goods and services that can be produced and those that cannot
-to illustrate the PPF, focus on two goods at a time and hold the quantities of all other goods and services constant
-and points on the frontier are attainable- points outside the PPF are unattainable |
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Term
| Opportunity cost of an action (for PPF) |
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Definition
the highest-valued alternative forgone
-PPF allows us to calculate opportunity cost
on PPF only two goods- only one alternative forgone: some quantity of the other good |
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Term
| Opportunity cost as a ratio for PPF |
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Definition
| used when comparing advantages: the decrease in the quantity produced of one good divided by the increase in the quantity produced of another good as we move along the PPF |
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Term
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Definition
reflects increasing opportunity costs: the opportunity cost of a good increases as the quantity of the good produced increases
-bows outward because resources are not all equally productive in all activities
(figure 2.2) |
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Term
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Definition
-when we cannot produce more of any one good without giving up some other good
-achieved at every point on PPF |
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Term
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Definition
when goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit
-point where MB=MC |
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Term
| Calculating marginal cost |
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Definition
| calculated by the slope of the PPF (figure 2.2) |
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Term
| Marginal benefit from a good or service, measuring |
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Definition
the benefit received from consuming one more unit of the good or service
-measured by the amount that a person is willing to pay for an additional unit |
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Term
| Principle of decreasing marginal benefit |
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Definition
| general principle- the more we have of any good or service, the smaller is its marginal benefit and the less we are willing to pay for an additional unit of it |
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Term
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Definition
the expansion of production possibilities
-increases our standard of living, but does not overcome scarcity |
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Term
| 2 key factors for economic growth |
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Definition
-Technological change
-Capital accumulation |
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Term
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Definition
a person has comparative advantage in an activity if that person can perform the activity at a lower opportunity cost than anyone else
-involves comparing opportunity costs |
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Term
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Definition
a person who is more productive than others
-involves comparing productivities |
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Term
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Definition
| any arrangement that enables buyers and sellers to get information and to do business with each other |
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