Chapter 2- The Economic Problem Flashcards
Production possibilities frontier
The boundary between the those combinations of goods and services that can be produced given the available factor of production and available production technology and those that cannot
Cetris paribus
When everything else remains the same
Productively efficient
On PPF. Can’t be improved (can’t get more of one without getting less of the other)
PPF gradient
Opportunity cost
Why does opportunity cost change (and marginal benefit)?
The more you produce of 1 thing, the more it costs to produce of one thing and the less valuable one more unit becomes
NB PPF
- Axes (labels)
- Concave slope (-ve gradient)
- oppertunity cost changes
Principle of decreasing marginal benefit
The more we consume of any good, the smaller the marginal benefit and the less we are willing to pay for an additional unit
Allocative efficiency
Where MB=MC
Key factors for economic growth
Technological change
Capital accumulation
Economic growth
Expansion of production possibilities leading to an increased standard of living
4 factors of economic coordination
- firms
- markets
- property rights
- money
Firm
An economic unit that hires factors of production and organizes them to produce and sell goods and services
Market
An arrangement that enables buyers and sellers to get information and to do business with each other
Property rights
The social arrangements that govern the ownership, use and disposal of anything that people value
Money
Any commodity or token that is generally acceptable as means of payment
