Micro-Econ Ch 2

Front 1

production possibilities
frontier (ppf)

Back 1

The production possibilities frontier (PPF)
graphically represents the possible
production combinations of two goods an
economy can produce over a given time
period given a state of technology, no
unemployed resources, and efficient
production.

Front 2

straight-line ppf

Back 2

Constant opportunity
costs with a straight-line
PPF

Front 3

resources (inputs)

Front 4

technology

Back 4

the body of skills &
knowledge concerning the use of
factors of production.

Front 5

law of increasing cost

Back 5

as an
economy produces more of a good, the
opportunity costs of producing that good
increases.

Front 6

bowed outward ppf

Back 6

The law of increasing opportunity costs causes
the PPF to be bowed outward.

Front 7

productive efficiency

Back 7

the maximum output is
produced given the level of resources &
technology.
gains are impossible in
one area, without losses in another.

Front 8

economic growth

Back 8

Economic growth occurs when the PPF shifts
outward.
What causes economic growth:
1) Increase in resources
2) Technological advances

Front 9

economic decline

Back 9

Economic decline causes the PPF to shift inward.
What causes economic decline:
1) A decrease in resources
2) Technological decline

Front 10

specialized growth

Front 11

economic systems

Back 11

determines the
way in which a society decides on
what goods to produce, how to
produce them, and for whom they
will be produced.

Front 12

mixed capitalism

Back 12

private ownership of the
factors of production, market allocation of
resources, & decentralized decision making.
Most economic activities take place in the private
sector.

Front 13

three key economic
questions

Back 13

1. What?
What goods & services will be produced?
2. How?
How goods & services will be produced?
3. For Whom?
Who will consume the goods &
services which are produced?

Front 14

property rights

Back 14

the laws, regulations, and
social customs that define what people can
and cannot do in society.

Front 15

trade

Back 15

The process where things (money, products,
etc.) are traded or exchanged.

Front 16

transactions cost

Back 16

Transaction costs are the costs associated
with trade.
Costs of searching out, negotiating, &
completing an exchange.

Front 17

comparative advantage

Back 17

occurs when
someone can produce a good at a lower
opportunity cost than someone else.
Individuals & countries should produce goods
for which they have a comparative advantage

Front 18

Absolute Advantage

Back 18

occurs when someone
can produce a good with fewer resources
than someone else.