Ch 2 - Scarcity

A set of 20 vocabulary flashcards summarizing key economic concepts from Chapter 2: Scarcity and the World of Trade-Offs.

Scarcity

The fundamental economic condition in which limited resources are insufficient to satisfy unlimited human wants.

Opportunity Cost

The highest-valued next-best alternative that must be forgone when a choice is made.

Trade-Off

The act of giving up one benefit or use of a resource to gain another because resources are limited.

Production Possibilities Curve (PPC)

A graph that shows all possible combinations of two goods that can be produced with fixed resources and technology.

Factors of Production

Inputs—land, labor, capital, and entrepreneurship—used to produce goods and services.

Land (Factor of Production)

All natural resources or gifts of nature employed in producing goods and services.

Labor

Human effort—both physical and mental—used in the production process.

Physical Capital

Manufactured resources such as machinery, buildings, and tools used to produce other goods.

Human Capital

The skills, education, and training embodied in workers that enhance their productivity.

Entrepreneurship

The ability to organize resources, make business decisions, raise capital, and bear risk to create goods and services.

Economic Goods

Scarce goods for which the quantity demanded exceeds the quantity supplied at a zero price.

Services

Intangible tasks performed for others that satisfy wants, often called intangible goods.

Law of Increasing Additional Cost

Principle stating that as more of a good is produced, the opportunity cost of producing additional units generally rises.

Productive Efficiency

A situation in which the maximum output is produced with given resources and technology, or equivalently, output is produced at minimum cost.

Economic Growth

An outward shift of the PPC indicating an increase in an economy’s capacity to produce goods and services.

Consumer Goods

Goods produced for direct personal satisfaction or present consumption.

Capital Goods

Goods used to produce other goods and services, thereby supporting future production.

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than others can.

Absolute Advantage

The ability to produce more of a good with a given amount of resources, or the same output using fewer resources, than another producer.

Division of Labor

The separation of production into distinct tasks, each performed by different workers, leading to specialization and higher productivity.