economics chapter 2: scarcity and the world of trade-offs

factors of production

fundamental elements that contribute to the creation of goods and services within an economy

land

encompasses all natural resources used in production

physical capital

tangible assets that are used in the production of goods and services

human capital

refers to the skills, knowledge, and experience possessed by individuals, which enhances the productivity and efficiency in the workforce

entrepreneurship

the ability to manage and organize other factors of production to create and operate a business

goods

goods or free goods are those that are obtained without cost

economic goods

economic goods are those obtained with a cost

absolute advantage

refers to a country’s ability to produce a good more efficiently than another

comparative advantage

refers to a country’s ability to produce a good at a lower opportunity cost than another

factors of production elements

land, labor, physical capital, human capital, entrepreneurship

labor

human effort used in the production process

production possibilities frontier/curve (PPF)

a curve that illustrates the production possibilities of an economy- the alternative combinations of two goods that an economy can produce with given resources and technology

attainable points

points on the curve and inside the curve represent production levels that are feasible with current resources and technology

unattainable points

points outside the curve that are beyond the current production capabilities

the law of increasing opportunity cost

states that as more of a good is produced, the opportunity cost of producing an additional unit of that good generally increases