ECO-101 Chapter 2 Terms

Created by spaz1992 

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Scarcity

This exists when there is not enough of something freely available to satisfy everyone that wants it. An item is scarce if it has a cost associated with it.

Production

Any activity that results in the conversion of resources that can be used in consumption.

Consumption

The use of goods and services for personal satisfaction.

Types of Resources

Land, Labor, Physical Capital, Human Capital, Entrepreneurship.

Land

The natural resources that are available from nature.

Labor

Productive contributions of humans who work.

Physical Capital

All manufactured resources like machinery and equipment used in production. Capital in economics is NOT stocks and bonds.

Human Capital

The accumulated training and education of workers.

Entrepreneurship

The component of human resources that organizes, manages and assembles all other types of resources to create and operate business ventures.

Economic Goods

Items that are scarce. Since they are scarce, they have a cost or price associated with them (incl. both goods and services).

Goods

All things from which people derive satisfaction or happiness.

Services

Mental or Physical labor or help purchased by consumers. "Intangible goods".

Free Goods

Goods for which there is no scarcity. Since these goods are not scarce, there is no cost associated with them.

Economic Bad

Any item we would pay to have less of.

Trade-offs

Giving up one good or activity to obtain some other good or activity. These are a result of scarcity.

Opportunity Cost

The highest-valued alternative that must be foregone when a choice is made. This depends on what you value most.

Simple Economy

Produces Defense Goods and Services (DGs) and Non-Defense Goods (NDGs).

Production Possibilities Schedule

Shows different combinations of goods and services that may be produced by the economy.

Production Possibilities Curve (PPC)

A graphical representation showing all possible combinations of quantities of goods and services that can be produced using the existing resources. It is the boundary between combinations that can be produced and those that cannot.

Shifts of the PPC

These reflect economic growth.

Better Technology

Society's pool of applied knowledge concerning how goods and services can be produced.

Capital Goods

Producer durables; non-consumable goods that firms use to make other goods.

Consumption Goods

Goods bought by households to use up, such as food and movies.

Opportunity Cost Formula

Opportunity Cost = Give Up / Get

Marginal Opportunity Cost

The amount of one good or service that must be given up to obtain one additional unit of another good or service.

Law of Increasing Additional Cost

The opportunity cost of producing additional units of a good generally increases as society attempts to produce more of that good. This accounts for the bowed-out shape of the PPC.

Specialization

The organization of economic activity so that what each person (or region) consumes is not identical to what it produces. Concentrates resources on the production of a good.

Comparative Advantage

The ability to produce a good or service at a LOWER OPPORTUNITY COST than someone else.

Gains from Trade

The difference between what can be produced without specialization and trade vs. with specialization and trade.

Division of Labor

The segregation of resources into different specific tasks.

Absolute Advantage (AA)

The ability to produce more units of a good or service using a given quantity of resources. Or, the ability to produce the same amount using less resources.

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