Glossary of introtomacrochapter2

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Created by eamolinaro

opportunity cost
the value of the best alternative foregone when an item or activity is chosen
sunk cost
a cost that has already been incurred, cannot be recovered, and thus is irrelevant for present and future economic decisions
law of comparative advantage
The individual, firm, region, or country with the lowest opportunity cost of producing a particular good should specialize in that good
absolute advantage
The ability to make something using fewer resources than other producers use
comparative advantage
the ability to make something at a lower opportunity cost than other producers use
The direct exchange of one product for another without using money
division 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; a curve showing alternative combinations of goods that can be produced when available resources are used efficiently; a boundary line between inefficient and unattainable combinations
the condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another; getting the most from available resources
law of increasing opportunity cost
to produce more of one good, a successively larger amount of the other good must be sacrificed
economic growth
an increase in the economy's ability to produce goods and services; reflected by an outward shift of the economy's PPF
economic system
The set of mechanisms and institutions that resolve the what, why, and for whom questions
3 Qs every economic system must answer
What, How, and for Whom?
pure capitalism
an economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets
private property rights
an owner's right to use, rent, or sell resources or property
Failures of pure capitalism
-No authority ensures the rules of the game are followed

-Ppl with no resources to sell could starve

-Producers can monopolize markets by eliminating competition

-Production/consumption of some goods involves side affects that could harm or benefit ppl NOT involved in the transaction

-Firms have no incentive to produce public goods (e.g. national defense)

-Market economies experience economic fluctuations in their level of economic activity

pure command system
an economic system characterized by the public ownership of resources and centralized planning
mixed system
an economic system characterized by the private ownership of some resources and the public ownership of other resources; some markets are regulated by the government

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