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25 Cards in this Set

  • Front
  • Back
opportunity cost
value of the best alternative forgone when an item or activity is chose.
sunk cost
cost tht has already been incurred. can't be recovered and is irrelevant for present and future economic decisions
law of comparitive advantage
individual, firm, region, or country with the lowest opportunity cost of producing a particular good shld specialize in tht good.
absolute advantage
ability to make something using fewer resources than other producers use.
comparative advantage
ability to make something at a lower opportunity cost than other producers face. better guide as to who shld do what
divison of labor
breaking down the production of a good into separate tasks.
specialization of labor
focusing work effort on a particular product or a single task.
production possibilities frontier (PPF)
curve shwing alternative combos of goods tht can be produced when available resources are used efficiently.
efficiency
no change tht cld increase the production of 1 good without decreasing production of othr good.
law of increasing opportunity cost
to produce more of one good, a successively larger amount of the other good must be sacrificed
economic growth
can shift PPF. an inc in economy's ability to produce goods and services. reflected by an outward shift of economy's PPF
PPF shifts outwardly when...
people work longer hours, an inc. in size or health of labor force, inc. in skills of labor force, inc. in availability of other resources, chng in technology
rules of the game
formal and informal institutions tht support the economy. laws, customs, manners, conventions and others tht encourage ppl to pursue productive activity
why does PPF slope downward?
b/c more of one good means les of another, demonstrating opportunity cost.
what does PPF's bowed out shape show?
reflects law of increasing opportunity cost, happens b/c some resources are adaptable
what does the outward shift off PPF show?
economic growth
3 questions every econ system must answer
1. What goods and services are to be produced?
2. How are they to be produced?
3. Whom are the to be produced?
economic system
set of mechanisms and institutions tht resolve the what, how and for whom questions
Criteria to distinguish among economic system
1. who owns the resources
2. what decision-making process is used to allocate resources and products
3. what types of incentives guide economic decision makers.
Pure Capitalism (market system)
private ownership of resources and use of price to coordinate economic activity in unregulated markets
private property rights
an owner's right to rent, sale, or use of property
Pure Command System (Communism)
public ownership of resources and centralized planning
flaws of pure capatilism
1. no central authority to protect 2. ppl w/ no resources cld starve
3. producers become monopolies
4. side effects cld occur to ppl not involved in market transaction.
5. private firms hv no incentive to produce public goods
flaws of pure command system
1. resources used inefficiently 2. resources wasted. 3. central plans reflect more preferences of central planners than those of society. 4. variety of products are more limited than capatilist econ. 5. everyone has less personal freedom in making econ. choices.
mixed economy
econ system characterized by private ownership of some resources and public ownership of other resources. some markets regulated by gov.