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Econ Ch2 - Scarcity

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satisfaction, usefulness, or value one obtains from consuming goods and services.

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Terms in this set (15)

satisfaction, usefulness, or value one obtains from consuming goods and services.

costs that we make in the past that we cannot recover.

products that an economy can produce given the resources it has available when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service).

productive efficiency.

a diagram that shows the productively efficient combinations of two.

production possibilities frontier (PPF).

statement which describes the world as it is.

positive statement.

all possible combinations of consumption that someone can afford given the prices of goods and the individual's income.

opportunity set.

measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative.

opportunity cost.

statement which describes how the world should be.

normative statement.

examination of decisions on the margin, meaning a little more or a little less from the status quo.

increments will decline.

as we add additional increments of resources to producing a good or service, the marginal benefit from those additional increments will decline.

marginal analysis.

as we consume more of a good or service, the utility we get from additional units of the good or service tends to become smaller than what we received from earlier units.

law of diminishing returns.

Adam Smith's concept that individuals' self-interested behavior can lead to positive social outcomes.

when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production.

comparative advantage.

all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set.`

budget constraint.

when the mix of goods produced represents the mix that society most desires

allocative efficiency.