Chapter 2 Flashcards
(14 cards)
the value of the best alternative forgone when an item or activity is chosen
opportunity cost
a cost that has already been incurred, cannot be recovered, and thus is irrelevant for present and future economic decisions
sunk cost
the individual, firm, region, or country with the lowest opportunity cost of producing a particular good should specialize in that good
law of comparative advantage
the ability to make something using fewer resources than other producers use
absolute advantage
the ability to make something at a lower opportunity cost than other producers face
comparative advantage
the direct exchange of one product for another without using money
barter
a curve showing alternative combinations of goods that can be produced when available resources are used efficiently
production possibilities frontier/curve (PPF)
the condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another
efficiency
the produce more of one good, a successively larger amount of the other good must be sacrificed
law of increasing opportunity cost
the set of mechanisms and institutions that resolve the what, how, and for whom questions
economic system
an economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets; there is no government
pure capitalism
an owner’s right to use, rent, or sell resources or property
private property rights
an economic system characterized by the public ownership or resources and centralized planning; communism
pure command system
an economic system characterized by the private ownership of some resources and the public ownership of other resources
mixed system
