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Flashcards in Mircoecon Chapter Two Deck (8)
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How does trade create value

1. In voluntary exchange, both parties are better off.
2. By channeling resources and goods to those who value them, trade creates value and increases wealth by a society's resources.


Transaction costs

The time, effort, and other resources needed to search out, negotiate, and complete an exchange.


Property Rights

The rights to use, control, and obtain the benefits from a good or resource.
1. The rights are an excuse use of that reasourse.
2. Legal protection.
3. The right to transfer, sell, or mortgage the property.


Production Possibilities Curve

A curve that outlines all possible combinations of total output that could be produced. The slope of the curve indicates the amount of one product that must be given up to produce more of the other.


Four factors that shifting the Production Possibility Curve

1. An increase the ability to produce goods and services.
2. technology expand the production possibilities.
3. An improvement in the legislation can increase output.
4. By working harder and giving up current leisure.


Division of Labor

A method that breaks down the production of a product into a series of specific tasks, each performed by a different worker


Law of comparative advantage

A principle that states that individuals, firms, regions, or nations can gain by specializing in the production of goods that they produce cheaply (at a low opportunity cost) and exchanging them for goods they cannot produce cheaply (at a high opportunity cost).


What are the two broad ways that an economy can be organized?

Market organization (capitalism) and Political organization (socialism).