MGCR 294: Chapter 2 Economics and Scarcity

Scarcity

The condition resulting from limited resources available to meet unlimited wants.

Trade-offs

Having more of one thing necessitates having less of another due to limited resources.

Opportunity Cost

The value of the highest-valued alternative forgone.

Production Possibilities Frontier (PPF)

A curve illustrating maximum combinations of two products producible with available resources and technology.

Allocative Efficiency

Achieved when the combination of goods maximally reflects consumer value preferences.

Increasing Marginal Opportunity Costs

As production of one good increases, the opportunity cost of producing an additional unit of that good generally rises.

Economic Growth

The sustained expansion of production possibilities, allowing an economy to produce more goods and services over time.

Comparative Advantage

The ability of an entity to produce a good at a lower opportunity cost than its trading partner.

Absolute Advantage

The ability to produce more with the same resources compared to another entity.

Market

A venue for buyers and sellers to exchange goods and services, facilitated by free interaction.

Factors of Production

The resources used in the production of goods and services: labor, capital, natural resources, and entrepreneurial ability.

Free Markets

Systems that allow buyers and sellers to interact freely, leading to efficient resource allocation.

Circular Flow of Income

The model illustrating the interdependence in an economy between households and firms through product and factor markets.

Contract Enforcement

The legal upholding of agreements to ensure confidence in trading practices.

Property Rights

Legal rights allowing individuals and firms to own, use, and transfer resources.

Efficiency

Using resources optimally to minimize waste.

Innovation

The development of new products and processes driven by competition in free markets.

Variety of Goods and Services

The broad selection of products available at competitive prices in a market.

Standards of Living

The overall economic welfare enhancement as societies consume beyond their individual production capabilities.

Households

Entities in the economy that supply factors of production and use their income to purchase goods and services.

Firms

Entities that produce goods and services using the factors supplied by households.

Labor

The human workforce involved in production.

Capital

Physical assets used in producing other goods.

Natural Resources

Raw materials utilized in production.

Entrepreneurial Ability

Skills involved in managing business operations.

Specialization

The focus on producing goods where an entity holds a comparative advantage.

Unattainable Combinations

Points outside the frontier of a PPF, representing levels of production that cannot be achieved with current resources.

Inefficient Combinations

Points inside the frontier of a PPF, indicating underutilization of resources.

Efficient Combinations

Points on the frontier of a PPF representing maximum production capabilities.

Outward Shift of PPF

Indicates economic growth, allowing for increased production possibilities.

Examples of Trade-offs

Considerations in decision-making processes involving alternatives, such as car purchases.

Tesla Production Example

Highlights decision-making related to resource allocation between producing different models.

PPF Graphing