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Economics Chapter 2 2


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Define full employment.
(1) the use of all available resources to produce want-satisfying goods and services; (2) the situation in which the unemployment rate and there is frictional and structural but no cyclical unemployment (and the real GDP of the economy equals potential output)
Define full production.
Employment of available resources so that the maximum amount of (or total value of) goods and services is produced; occurs when both productive efficiency and allocative effiency are realized.
Define productive effiency.
the production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs.
Define allocative efficiency.
the apportionment of resources among firms and industries to obtain the production of the products most wanted most wanted by society (consumers); the output of each product at which its marginal cost and price and price or marginal benefit are equal.
Define consumer goods.
products and services that satisfy human wants directly.
Define capital goods.
human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants
Define production possibilities table.
lists the different combinations of two products that can be produced with a specific set of resources.
Define the production possibilities curve.
a curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed.
Define opportunity cost.
the amount of other products that must be forgone or sacrificed to produce a unit of a product.
What is the law of increasing opportunity costs?
the principle that as the production of a good increases, the opportunity cost of producing an additional unit rises.
What is economic growth?
(1) an outward in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita.
Define economic system?
a particular set of institutional arrangements and a cooridinating mechanism for solving the economizing problem; a method of organizing an economy, of which the market system and the command system are the two general types.
Define market system.
all the product and resource markets of a market economy and the relationships among them; a method that allows the prices determined in those markets to allocate the economy's scarce resources and to communicate and coordinate the decisions made by consumers, firms, and resource suppliers.
Define capitalism.
an economic system in which property resources are privately owned and markets and prices are used to direct and coordinate economic activities.
Define command system.
a method of organizing an economy in which property resources a publicly owned and government uses central economic planning to direct and coordinate economic activities; command economy.
Define resource market.
a market in which households sell and firms buy resources or the services of resources.
Define product market.
a market in which products are sold by firms and bought by households.
What is the circular flow model?
the flow of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households and from households to firms.

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