Chapter 2 - Economic Tools and Economic Systems

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12 Terms

1
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absolute advantage

The term refers to the ability to make something using fewer resources than other producers use.

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PPF

The production possibilities frontier, or , depicts an economy's productive capacity when all resources are utilized efficiently.

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Opportunity cost

depends on your alternatives.

4
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time consuming

Because learning about alternatives is expensive and , some decisions are made on the basis of incomplete or even incorrect information.

5
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law of comparative advantage

According to the , the person who has the lowest opportunity cost of creating a certain item should specialize in that good.

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Comparative advantage

focuses on what else those resources could generate- that is, on the opportunity cost of those resources.

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PPF

The can migrate in and out of play over time as a result of changes in resource availability, technology, or game regulations.

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comparative advantage

Most individuals eat just a small portion of what they produce and generate only a small portion of what they consume due to specialization and .

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Comparative advantage

is a superior criterion for determining who should do what.

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Sunk cost

A cost that has already been incurred, cannot be recovered, and thus is irrelevant for present and future economic decisions

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Opportunity cost

value of the best alternative is forgone when an item or activity is chosen

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law of comparative advantage

According to the , the person who has the lowest opportunity cost of creating a certain item should specialize in that good.