Econ Midterm 1- Ch 2

Front 1

Marginal analysis

Back 1

Does marginal benefit exceed marginal cost?

Front 2

marginal benefit (MB)

Back 2

tells us the additional benefits received from a choice

Front 3

marginal cost (MC)

Back 3

additional costs from a decision

Front 4

Production possibilities curve (PPC)

Back 4

graph that shows the possible combinations of goods that an economy can produce with its given resources (X-axis: Good A, Y-axis: Good B) e.g. milk and butter

Front 5

PPC assumptions

Back 5

1) only 2 goods
2) we have a fixed amount of resources
3) fixed technology

Front 6

Points inside the PPC curve

Back 6

Not efficient (not using full potential of resources)

Front 7

Points outside the PPC curve

Back 7

impossible

Front 8

PPC and opportunity costs

Back 8

If you plot out the points on the PPC, the intervals between each X and Y coordinate are the opportunity costs. DIRECTION COUNTS.

Front 9

Law of increasing opportunity costs

Back 9

the opportunity cost of producing a good rises as more of that good is produced because resources are not equally suited to the production of both goods

Front 10

Straight line PPC

Back 10

constant opportunity cost; occurs because resources are equally consumed to produce both goods

Front 11

Economic growth

Back 11

Outward shift of the PPC; growth from adding resources or technology
Inward shift- wrecked resources; not from person making conscious decision not to produce or use resources

Front 12

Absolute advantage

Back 12

When you can produce more of a good based on productivity (who makes more)

Front 13

Comparative advantage

Back 13

When you can produce a good at a lower opportunity cost (who gives up less)

Front 14

Bowed line PPC

Back 14

Increasing opportunity cost