The Economic Problem: Scarcity and Choice

These flashcards cover key economic concepts related to scarcity, choice, and different types of economic systems as described in the lecture notes.

Scarcity

The limited availability of resources in relation to unlimited human wants.

Opportunity Cost

The value of the next best alternative forgone when making a choice.

Factors of Production

Inputs used in the production of goods and services, including land, labor, capital, and entrepreneurship.

Capital Goods

Goods produced for the purpose of producing other goods and services.

Consumer Goods

Goods produced for present consumption.

Production Possibility Frontier (PPF)

A graph showing the maximum possible output combinations of two goods that can be produced with available resources.

Production Efficiency

The scenario where resources are utilized in such a way that maximum output is produced from them.

Absolute Advantage

The ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group.

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than other producers.

Laissez-Faire Economy

An economic system where individuals and firms are free to pursue their own interests with minimal government intervention.

Consumer Sovereignty

The situation in an economy where consumer preferences dictate the production of goods and services.

Market Economy

An economic system where decisions regarding investment, production, and distribution are based on supply and demand.

Command Economy

An economic system in which the government or central authority makes decisions about what to produce, how to produce, and for whom to produce.

Distributive Efficiency

The allocation of resources in a way that maximizes the total benefit received by society.

Entrepreneurship

The activity of setting up a business or businesses, taking on financial risks in the hope of profit.

Inefficiency

A situation in which resources are not being used to their fullest potential, resulting in less output than possible.

Economic Growth

An increase in the total output of an economy, often measured by the growth in GDP.

Marginal Rate of Transformation (MRT)

The rate at which one good must be sacrificed to produce an additional unit of another good.

Specialization

The process of concentrating on and becoming expert in a particular subject or skill, often leading to increased efficiency.

Trade-off

The balance achieved between two desirable but incompatible features; a compromise.