Ch. 2 Vocab

positive statement

can be tested and validated; it describes "what is"

normative statement

an opinion that cannot be tested or validated; it describes "what ought to be"

ceteris paribus

means "other things being equal" or "all else equal" and is used to build economic models. It allows economists to examine a change in one variable while holding everything else constant

production possibilities frontier

a model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently

law of increasing opportunity cost

states that the opportunity cost of a good rises as more of the good is produced

specialization

the limiting of one's work to a particular area

absolute advantage

refers to the ability of one producer to make more than another producer with the same quantity of resources

consumer goods

goods produced for present consumption

capital goods

help produce other valuable goods and services in the future

investment

the process of using resources to create or buy new capital