Econ # 2
Terms
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- absolute advantage
- A producer has an **** over another in the production of a good or service if it can produce that product using fewer resources. (Adam Smith)
- Investment
- the process of using resources to produce new capital. Capital is the accumulation of previous investment.
- allocative efficiency
- producing the goods and services that people most want at the lowest possible cost.
- Production
- the process that transforms scarce resources into useful goods and services.
- Inputs
- Resources or factors of production
- The marginal rate of transformation (MRT) is
- the slope of the PPF
- Distribution of Output
- Also determined in a decentralized way. The amount households get depends on income and wealth.
- Command Economy
- An economy in which a central government either directly or indirectly, sets output targets, incomes, and prices.
- Consumer goods
- these are goods produced for present consumption.
- Market Imperfections are
- Inefficiencies, Unfair distribution of income, Periods of unemployment and inflation recur with some regularity
- The economic problem
- Given scarce resources, how, exactly, do large, complex societies go about answering the three basic economic questions?
- Two most important sources of growth
- accumulation of capital and technological advances.
- Resources
- anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants.
- The Market
- the institution through which buyers and sellers interact and engage in exchange.
- Production possibilities frontier (PPF)
- A graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently.
- comparative advantage
- • A producer has a **** in the production of a good or service over another if it can produce that product at a lower opportunity cost. (David Recardo)
- Production
- the process that transforms scarce resources into useful goods and services.
- inputs
- Resources or factors of production
- theory of competitive advantage
- specialization and free trade will benefit all trading parties, even those that may be absolutely
- Outputs
- • Goods and services of value to households are the **** of the process of production. i.e. Usable products
- Consumer sovereignty
- The mix of output produced is dicated by the tastes and preferences of consumers.
- Capital
- things that are themselves produced and that are then used in the production of goods and services. Examples: PC, buildings, equipment, shovel
- Laissez-Faire Economy (Free enterprise)
- "Allow (them) to do." An economy in which individual people and firms pursue their own self-interests without any central direction or regulation.
- Price
- The amount that a product sells for per unit. It reflects what society is willing to pay.
- Individual production decisions
- Individuals are free to start businesses. This increases output and develops new production techniques.
- The Three Basic Economic questions
- What gets produced? How its produced? Who gets what is produced?
- Price Theory
- Prices are the basic coordinating and signaling mechanism.
- Capital goods
- These are goods used to produce other goods and services.
- Economic growth does?
- This pushes the PPF out/away from the origin
- Production
- the process that transforms scarce resources into useful goods and services.