Microecon Chapter 2

Productive Efficiency

Minimum ATC (Average Total Cost)

Allocative Efficiency

Supply = Demand, Marginal Benefit = Marginal Cost, Price = Marginal Cost

Absolute advantage

being able to produce the most of a good

Comparative advantage

Producing a good at the lowest opportunity cost

Opportunity Cost

the cost of giving up one opportunity in exchange for another one. the one you chose should be the next best alternative

Inside Production Possibilities Curve

Inefficient, due to unemployment or idle factories

On Production Possibilities Curve

Efficient, allocatively and productively

Outside Production Possibilities Curve

Impossible w/o trade or increase in tech, capital or labor

Law in Increasing Opportunity Cost

Opportunity Cost increases as you produce more of a good (diffferent goods)

Marginal Benefit > Marginal Cost

Too little, society should produce more

Marginal Cost > Marginal Benefit

Too little, society should produce less

What do Households provide to the resource market?

Land, Labor, Capital, and Entrepreneurial Ability

What do Firms provide to the Resource Market?

Wages, Rent, Interest, Profit

What do Households provide to the produce market?

money

What do firms provide to the product market?

Goods and Services