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when you give up something in order to have something else (9)

production possibilities curve

a graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good; it illustrates the trade-offs facing an economy that only produces two goods (25-27)

efficient in production

when an economy is producing at a point on its production possibility frontier; the production of any particular mix of goods and services in the least costly way; also known as productive efficiency (24-25, 29)

efficient in allocation

the production of the particular mix of goods and services most highly valued by society; requires that the economy allocate its resources so that consumers are as well off as possible; also known as allocative efficiency; where MB=MC (24-25, 28-29)

economic growth

the ability of the economy to produce increasing quantities of goods and services (29-31)

consumer goods

products and services that satisfy human wants directly (23)

capital goods

products that satisfy our wants indirectly by making possible more efficient production of consumer goods (23)

law of increasing opportunity costs

As the production of a particular good increases, the opportunity cost of producing an additional unit rises (i.e. the MC increases); rationale: economic resources are not completely adaptable to alternative uses (27)


the exchange of goods and services between people

gains from trade

people can get more of what they want through trade than they could if they tried to be self-sufficient (99-101)


each person specializes in the task that he or she is good at performing (62, 98-101)

comparative advantage

the ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers (98-101, 732-736)

absolute advantage

the ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources

terms of trade

The rate at which units of one product can be exchanged for units of another product; the price of a good or service; the amount of one good or service that must be given up to obtain 1 unit of another good or service (736)

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