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Flashcards in Chapter 2 Deck (23):
1

scarcity

Situation in which humans have unlimited wants that we try to meet in a world with limited resources.

2

opportunity cost

A cost faced in every decision humans make. Since scarcity exists, people must make choices. Inevitably, we face trade-offs where we have to give up
things that we desire to get other things that we desire even more.A cost faced in every decision humans make. Since scarcity exists, people must make choices. Inevitably, we face trade-offs where we have to give up
things that we desire to get other things that we desire even more.

3

budget constraint

Model that economists use for illustrating the choices that individuals face in a situation of scarcity. Sometimes also called the opportunity set.

4

opportunity set

Model that economists use for illustrating the choices that individuals face in a situation of scarcity. Sometimes also called the budget constraint.

5

utility

Refers to the level of satisfaction or pleasure that people receive from their choices.

6

explicit cost

Out-of-pocket monetary cost.

7

implicit cost

Does not record an out-of-pocket cost but instead quantifies what has been given up.

8

marginal analysis

Involves comparing the benefits and costs of choosing a little more or a little less of a good.

9

law of diminishing marginal utility

Refers to a situation in which as a person receives more of a good, the additional or marginal utility from each additional unit of the good declines.

10

marginal utility

The additional utility provided by one additional unit of consumption of a good. The most common pattern for marginal utility is diminishing marginal utility.

11

sunk costs

Costs that were incurred in the past and cannot be recovered.

12

factors of production

Resources used to produce goods and services. Can be natural resources, labor, or physical capital.

13

Natural resources

Any naturally occurring resource such as soil, air, wind, minerals, trees, etc.

14

Labor

Human resources, including human capital; the skills and education of workers.

15

human capital

Refers to the skills and training of a worker. In general, the more skills workers possess, the higher their compensation. Human capital can refer to education or experience.

16

Physical capital

Any manufactured resource used to produce other goods and services. Often this is simply referred to as the buildings and equipment used in production.

17

production possibilities frontier (PPF)

An opportunity set for the economy as a whole. It is typically displayed as a diagram that shows the combinations of output that an economy can produce, given its current factors of production and level of technology.

18

the law of diminishing returns

Holds that as additional increments of resources are added to a certain purpose, the marginal benefit from those additional increments declines.

19

efficiency

Refers to the situation in which it is impossible to get more of one thing without experiencing a tradeoff resulting in less of something else. The production
possibilities frontier can illustrate two kinds of efficiency: productive efficiency and allocative efficiency.

20

productive efficiency

Occurs when given the available factors of production and technology, it is impossible to produce more of one good without decreasing the quantity that is
produced of another good.

21

allocative efficiency

Occurs when the particular mix of goods being produced—that is, the specific choice along the production possibilities frontier—represents the allocation
that society most desires. That unique combination will provide the greatest level of utility for society as a whole.

22

positive statements

Describe the world as it is.

23

normative statements

Describe how the world should be.