Chapter 2 - ECO 1

Factors of production

workers, capital, resources, entrepreneurial ability

The more resources already devoted to an activity, the _____ the payoff of devoting additional resources to that activity

smaller

Capital stock

amount of machinery and other physical capital available in an economy

Production possibilities frontier (PPF)

a curve that shows the max attainable combinations of two goods that can be produced with available resources & current technology

When resources increase, economy’s PPF shifts _____

Outward

Economic growth

the ability of an economy to produce increasing quantities of goods & services

Trade

the act of buying and selling

Absolute advantage

ability of an individual, a firm, or a country to produce more of a good/service than competitors using same amount of resources

Comparative advantage

ability of an individual/firm/country to produce a good/service at a lower opportunity cost (should specialize)

The basis for trade is ______, not absolute advantage

comparative advantage

Product market

Market for goods

Factor market

market for factors of production

Household

all the individuals in a home

Firms are ______ of goods/services

suppliers

Households are suppliers of ______

labor

Circular-flow diagram

shows how participants in markets are linked

Free market

when gov. puts few restrictions on how goods/services can be produced/sold or on how factors of production can be employed

Guild system

organizations of producers had authority to control production of a good

Relative price

price of one good/servce relative to other goods or services

A market system mobilizes knowledge through ______

competition

Property rights

rights of individuals or businesses to have exclusive use of their property, including the right to buy or sell it