Chapter 2: The Economic Problem

Front 1

What does PPF stand for?

Back 1

Production Possibilities Frontier

Front 2

What is a PPF?

Back 2

The boundary between the amount of goods and services that can be produced and what can't.

Front 3

What is Production efficiency?

Back 3

If we produce goods and services at the lowest possible cost. This occurs at all of the point on the PPF.

Front 4

Why is Production inefficient inside the PPF curve?

Back 4

Because resources are either unused or misallocated or both

Front 5

What does it mean when resources are unused?

Back 5

When they are idle, but could be working.

Front 6

What does it mean when resources are misallocated?

Back 6

When they are assigned to tasks for which they are not the best match.

Front 7

What do we learn about production efficiency from the PPF curve?

Back 7

Trade off of one product for another, which involves an opportunity cost
Opportunity Cost: Points outside the curve don't exist in the economy -> Not enough resources.

Front 8

What is Opportunity Cost?

Back 8

1. The Highest valued alternative forgone

2. A ratio : Decrease in Quantity of One Good / Increase in Quantity of one good

Front 9

What is allocated efficiency

Back 9

When goods and services are produced at the lowest possible cost, and have the highest possible benefit.

Front 10

What is the marginal cost of a good?

Back 10

1. the opportunity cost of producing an additional good.

2. Can be derived from the PPF

Front 11

What is the Marginal Benefit of a good?

Back 11

1. The benefit from consuming one more unit of good

2. Can be derived from the PPF curve

3. Measured by how much you wish to pay for an additional good.

4. It is equivalent to your happiness level

5. the more you consume, the less willing you are to pay for more.

Front 12

What is Economic Growth?

Back 12

The expansion of Production Possibilities.

Front 13

How is economic growth achieved?

Back 13

1. Technological change: the development of new goods and of better ways to produce goods and services

2. Capital Accumulation: the growth of capital resources, including human capital.

3. Specialization and Trade: Outsourcing of labour.

Front 14

What is Comparative Advantage?

Back 14

An activity that one can produce at a lower cost than anyone else.

Differences in opportunity costs arise in differences of individual abilities

Front 15

What is an Absolute Advantage?

Back 15

When someone is more productive than others.

Front 16

What are 4 Social Institutions?

Back 16

-Firms: An economic unit that hires factors of production and organizes those factors to produce and sell goods and services.

- Markets: A Place where people buy and sell goods and services or an arrangement that enables buyers and sellers to receive info about each other.

- Property Rights: Govern the ownership, use and disposal of anything that people value.

- Money: Any commodity or token that is accepted as a means of payment.

Front 17

What is a circular Flow through a market?

Back 17

It shows the flow that results from the choices that households make and firms make.

Front 18

What are households?

Back 18

They specialize and choose the quantities of land, labour, capital and entrepreneurial services to sell or rent firms.

Front 19

What is a Marginal Benefit Curve?

Back 19

A curve that is used to show the relationship between the marginal benefit from a good, and the quantity consumed of a good.