Ch 2 Study Notes on Trade-offs, Comparative Advantage, and the Market System

These flashcards cover key concepts from the ECON 101 lecture on trade-offs, comparative advantage, and the market system.

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Trade-offs

To get more of one thing, society must accept less of another.

Production Possibilities Frontier (PPF)

A curve showing the maximum attainable combinations of two goods that can be produced with available resources and current technology.

Opportunity Cost

The highest-valued alternative that must be given up to engage in an activity.

Economic Growth

The ability of the economy to increase the production of goods and services.

Specialization

The act of focusing on a particular activity or product in which one has a comparative advantage.

Absolute Advantage

The ability to produce more of a good or service than competitors using the same amount of resources.

Comparative Advantage

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

Circular-Flow Diagram

A model that illustrates how participants in markets are linked through real and money flows.

Free Market

A market with few government restrictions on how goods or services can be produced or sold.