Chapter 2: The Key Principles of Economics Vocabulary

Vocabulary flashcards covering key terms and economic principles from Chapter 2 of Macroeconomics: Principles, Applications, and Tools.

Opportunity Cost

What you sacrifice to get something.

Production Possibilities Curve

A curve that shows the possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used.

Marginal Benefit

The additional benefit resulting from a small increase in some activity.

Marginal Cost

The additional cost resulting from a small increase in some activity.

The Marginal Principle

Increase the level of an activity as long as its marginal benefit exceeds its marginal cost, choosing the level at which the marginal benefit equals the marginal cost.

The Principle of Voluntary Exchange

A principle stating that a voluntary exchange between two people makes both better off.

The Principle of Diminishing Returns

A principle stating that when output is produced with two or more inputs and one input is increased while holding the other inputs fixed, output will increase at a decreasing rate beyond the point of diminishing returns.

Nominal Value

The face value of an amount of money.

Real Value

The value of an amount of money in terms of what it can buy.

The Real-Nominal Principle

A principle stating that what matters to people is the real value of money or income, which is its purchasing power, not its face value.