Micro Chapter 2
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17 terms
Terms | Definitions |
|---|---|
 Capital | Things that are produced and then used in the production of other goods and services. |
| Factors of Production | The inputs into the process of production. Another term for resources |
| Production | 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. |
| Outputs | Goods and services of value to households. |
| 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. |
| Absolute Advantage | 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. |
| Comparative Advantage | 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 |
| Consumer Goods | Goods produced for present consumption. |
| Investment | The process of using resources to produce new capital. |
| Production Possibility Frontier | 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). |
| Command Economy | An economy in which a central government either directly or indirectly sets output targets, incomes, and prices. |
| Laissez-faire Economy | 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. |
| Market | The institution through which buyers and sellers interact and engage in exchange. |
| Consumer Sovereignty | The idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase). |
| Free Enterprise | The freedom of individuals to start and operate private businesses in search of profits. |
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