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15 Cards in this Set
- Front
- Back
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allocative efficiency
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when the mix of goods being produced represents the mix that society most desires
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budget constraint
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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
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comparative advantage
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when a country can produce a good at a lower cost in terms of other goods; or, when a countryhas a lower opportunity cost of production
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invisible hand
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idea that self-interested behavior by individuals can lead to positive social outcomes
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law of diminishing marginal utility
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as we consume more of a good or service, the utility we get from additional unitsof the good or service tend to become smaller than what we received from earlier units
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law of diminishing returns
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as additional increments of resources are added to producing a good or service, the marginalbenefit from those additional increments will decline
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marginal analysis
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examination of decisions on the margin, meaning a little more or a little less from the status quo
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normative statement
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statement which describes how the world should be
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opportunity cost
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measures cost by what is given up in exchange; opportunity cost measures the value of the forgonealternative
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opportunity set
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all possible combinations of consumption that someone can afford given the prices of goods and theindividual’s income
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positive statement
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statement which describes the world as it is
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production possibilities frontier (PPF)
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a diagram that shows the productively efficient combinations of two productsthat an economy can produce given the resources it has available.
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productive efficiency
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when it is impossible to produce more of one good (or service) without decreasing the quantityproduced of another good (or service)
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sunk costs
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costs that are made in the past and cannot be recovered
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utility
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satisfaction, usefulness, or value one obtains from consuming goods and services
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