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18 Cards in this Set
- Front
- Back
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Absolute advantage |
When one party can produce more of a good than another with the same resources |
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Comparative advantage |
When one party can produce a good at a lower opportunity cost than any other |
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Cost-benefit analysis |
How rational decision-makers decide on one choice or course of action as opposed to another, by weighing the pros and cons of a decision in an attempt to maximize utility |
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Economics |
The study of how individuals make choices regarding allocating scarce resources to satisfy unlimited wants |
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Marginal |
relating to production or consumption of ONE MORE of something |
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Marginal utility |
The amount of satisfaction one derives from consuming one more of a good or service |
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Normative economics |
Economic analysis that focuses on what should be, rather than what actually is or can be; involves opinion |
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Opportunity cost |
The cost of what is given up when you make a decision; the cost (monetary or otherwise) of the “next best” alternative |
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Pareto efficient |
A state where it is impossible to improve one person’s wellbeing without reducing someone else’s well-being |
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Positive economics |
Economic analysis that seeks to describe and explain economic phenomena |
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Production Possibilities Frontier (PPF) |
A graphical representation of the different combinations of output that can be produced |
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Rational |
The state of mind of people that effectively engage in cost/benefit analysis, only making decisions that benefit them |
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Scarcity |
The fact that all resources are finite; the basic problem of economics |
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Trade-offs |
The idea that in order to get something, we must give up |
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Utility |
The amount of satisfaction one derives from something; usually expressed as a number on an arbitrary scale |
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Util |
Arbitrary unit used by economists to quantify utility for measures and comparisons |
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Allocative efficiency |
____________ _______ occurs when there is an optimal distribution of goods and services, taking into account consumer’s preferences. A more precise definition of allocative efficiency is at an output level where the price equals the Marginal Cost (MC) of production. This is because the price that consumer’s are willing to pay is equivalent to the marginal utility that they get. Therefore the optimal distribution is achieved when the marginal utility of the good equals the marginal cost. |
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Productive efficiency |
___________ _______ is concerned with producing goods and services with the optimal combination of inputs to produce maximum output for the minimum cost. |
