Introduction to Microeconomics - Specialization and Exchange

These flashcards cover key vocabulary and concepts related to the principles of microeconomics, focusing on specialization, trade, production possibilities, and advantages in production.

Production Possibilities Frontier (PPF)

A curve that shows all possible combinations of two outputs that can be produced using all available resources.

Opportunity Cost

The trade-off associated with producing more of one good over another, represented by the slope of the PPF.

Absolute Advantage

The ability of a country or individual to produce more of a good or service than another country or individual.

Comparative Advantage

The ability of a country or individual to produce a good at a lower opportunity cost than another.

Invisible Hand

A term coined by Adam Smith to describe the self-regulating nature of the marketplace.

Specialization

The process of focusing resources on the production of a limited range of goods to gain efficiency.

Producers

Individuals or entities that create goods or services.

Consumers

Individuals or entities that purchase or use goods and services.

Trade

The exchange of goods and services between countries or individuals.

Efficiency

The optimal use of resources to maximize output.

Inefficiency

A situation where resources are not utilized to their fullest potential, resulting in lost output.

Shifting the PPF

The movement of the production possibilities frontier due to changes in resources or technology.

Gains from Trade

The improvement in outcomes when specialized producers exchange goods and services.

Sector-specific Shift

A movement of the PPF due to an improvement in technology affecting only one industry.

Economy-wide Shift

A movement of the PPF due to an increase in available resources across the entire economy.

Linear PPF

A production possibilities frontier with a constant opportunity cost represented by a straight line.

Concave PPF

A production possibilities frontier that curves outward, indicating increasing opportunity costs.

Production Possibilities Model

A model used to analyze the production capabilities of an individual or a country.

Proprietary Technology

Technology that is owned by a specific company or individual and may not be available for others.

Consumption Possibilities

The various quantities and types of goods and services that consumers can obtain in the marketplace.

Input Suitability

The degree to which a resource is suited for producing a particular good.

Resources

The inputs used in the production of goods and services, including labor, capital, and natural resources.

Surplus Production

The situation where the quantity produced exceeds the quantity consumed.

Demand and Supply

Market forces that determine the prices and quantities of goods produced and consumed.

Economic Model

A simplified representation of reality used to analyze economic behavior.

Market Equilibrium

The state at which supply equals demand for a good.

Consumption without Trade

The scenario in which a country consumes only what it produces.

Production inside the PPF

A situation where the production is below the maximum potential output indicated by the PPF.

Opportunity Cost Calculation

The assessment of what is forgone to produce an additional unit of a good.

Tastes and Preferences

The subjective factors that influence consumers' choices between goods.

Influence of Technology on Production

The effect that technological advancements have on the production capabilities of goods.

Resource Allocation

The process of distributing resources among various uses to maximize efficiency and output.

Market Specialization

When a country or individual focuses on the production of a specific good in which they have a comparative advantage.

Worker Productivity

The output generated per worker, which can influence a nation's production capacity.