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31 terms

ECO-101 Chapter 2 Terms

STUDY
PLAY
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.