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Invisible Hand
________: a way in which an individuals pursuit of self- interest can lead, without the individual intending it, to good results for society as a whole.
Trade
________- off: comparison of costs and benefits of doing something.
Opportunity cost
________: what you must give up in order to get something, the net benefit of the next best alternative.
Specialization
________: a country should ________ in the product that they have comparative advantage.
Market Failure
________: the point at which the individual pursuit of self interest found in markets makes society worse off, that is, the market outcome is inefficient.
Absolute advantage
________: uses fewer inputs to produce a good.
Principle 1
choices are necessary because resources are scarce
Scarce
a resource is scarce when there is not enough of the resource available to satisfy all the various ways a society wants to use it
Trade-off
comparison of costs and benefits of doing something
Opportunity cost
what you must give up in order to get something, the net benefit of the next best alternative
Principle 2
the true cost of something is opportunity cost
Opportunity cost
involves two items, monetary costs plus subjective costs
Market economy
an economic system in which the main form of economic organization is the firm, in which the private owners of capital goods hire labor to produce goods and services for sale of markets for projects
Command Economy
centrally planned economic system, the government has been the institution controlling production and deciding how goods should be distributed, and to whom
China
quota of food and water, no more, planned out
Invisible Hand
a way in which an individuals pursuit of self-interest can lead , without the individual intending it, to good results for society as a whole
Market Failure
the point at which the individual pursuit of self interest found in markets makes society worse off, that is, the market outcome is inefficient
Offshoring
outsourcing, sending work to other countries
Principle 3
There are gains from trade
Absolute advantage
uses fewer inputs to produce a good
Comparative advantage
greatest absolute advantage or least productivity disadvantage (comparatively better)
Specialization
a country should specialize in the product that they have comparative advantage
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