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Econ Chapter 2
Trade-offs, Comparative Advantage, and Market system
18
Economics
Undergraduate 1
02/23/2017

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Term
Scarcity
Definition
a situation in which unlimited wants exceed the limited resources available to fulfill those wants.
Term
production possibilities frontier (PPF)
Definition
a curve showing the maximum attainable combinations of two goods that can be produced with available resources and current technology.
Term
Is the PPF a positive or normative tool?
Definition
Positive; it shows “what is”, not “what should be”.
Term
Points below the curve are...
Definition
inefficient
Term
Points above the curve are...
Definition
unattainable with current resources.
Term
Opportunity cost
Definition
The highest-valued alternative that must be given up to engage in an activity.
Term
Economic growth
Definition
the ability of the economy to increase the production of goods and services.
Term
Trade
Definition
The act of buying and selling
Term
Absolute advantage
Definition
The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.
Term
Comparative advantage
Definition
The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
Term
A market
Definition
a group of buyers and sellers of a good or service, and the institution or arrangement by which they come together to trade.
Term
factors of production
Definition
labor, capital, natural resources, and other inputs used to make goods and services.
Term
factor market
Definition
Households receive payments for these factors by selling them to firms
Term
product markets
Definition
Firms supply goods and services to; households buy these products from the firms.
Term
Circular-flow diagram
Definition
A model that illustrates how participants in markets are linked.
Term
Circular-flow diagram
Definition
No government
No financial system
No foreign buyers and sellers of goods
Term
free market
Definition
one with few government restrictions on how a good or service can be produced or sold, or on how a factor of production can be employed.
Term
Property rights
Definition
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it
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