Flashcards in Chapter 2 - The Economic Problem: Scarcity and Choice Deck (19):
Things that are produced and then used in the production of other goods and services.
factors of production (or factors)
The inputs into the process of production. Another term for resources.
The process that transforms scarce resources into useful goods and services.
inputs or resources
Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants.
Goods and services of value to households.
The best alternative that we give up, or forgo, when we make a choice or decision.
theory of comparative advantage
Ricardo’s theory that specialization and free trade will benefit all trading parties, even those that may be “absolutely” more efficient producers.
A producer has an absolute advantage over another in the production of a good or service if he or she can produce that product using fewer resources.
A producer has a comparative advantage over another in the production of a good or service if he or she can produce that product at a lower opportunity cost.
Goods produced for present consumption.
The process of using resources to produce
production possibility frontier (ppf )
A graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently.
marginal rate of transformation (MRT)
The slope of the production possibility frontier (ppf ).
An increase in the total output of an economy. It occurs when a society acquires new resources or when it learns to produce more using existing resources.
An economy in which a central government either directly or indirectly sets output targets, incomes, and prices.
Literally from the French: “allow [them] to do.” An economy in which individual people and firms pursue their own self-interest without any central direction or regulation.
The institution through which buyers and sellers interact and engage in exchange.
The idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase).