MCC ECON 201 Economics I (Macro) - Chapter 2

15 flashcards · Economics · by luckydog789 (harrison holbrook)

1. Allocative efficiency

   When the mix of goods produced represents the mix that society most desires

2. Budget constraint

   All possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set (typically a straight line when graphed, where the slope is determined by the relative price of the choices)

3. Comparative advantage

   When a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production

4. Invisible hand

   Adam Smith's concept that individuals' self-interested behavior can lead to positive social outcomes

5. Law of diminishing marginal utility

   As we consume more of a good or service, the utility we get from additional units of the good or service tends to become smaller than what we received from earlier units

6. Law of diminishing returns

   As we add additional increments of resources to producing a good or service, the marginal benefit from those increments will decline

7. Marginal analysis

   Examination of decisions on the margin, meaning a little more or a little less from the status quo

8. Normative statement

   Statement which describes how the world should be

9. Opportunity cost

   Measures cost by what we give up for / forfeit in exchange; opportunity cost measures the value of the forgone alternative

10. Opportunity set

    All possible combinations of consumption that someone can afford given the prices of goods and the individual's income

11. Positive statement

    Statement which describes the world as it is

12. Production possibilities frontier (PPF)

    A diagram that shows the productively efficient combinations of two products than an economy can produce given the resources it has available (typically curved outward due to the law of diminishing returns). The frontier is the edge of this curve, where everything on the frontier is productively efficient

13. Productive efficiency

    When it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)

14. Sunk cost

    Costs that we made in the past that we cannot recover (that we should try to avoid influencing our decisions)

15. Utility

    Satisfaction, usefulness, or value on obtains from consuming goods and services