ECON 101 - Chapter 2 Flashcards

Production Possibilities Frontier (PPF)

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

Opportunity Cost

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

Scarcity

A fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

Allocative Efficiency

Choosing the best point on the production possibilities frontier to maximize benefits.

Economic Growth

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

Comparative Advantage

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

Absolute Advantage

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

Market System

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Factors of Production

The inputs used to make goods and services, including labor, capital, natural resources, and entrepreneurial ability.

Free Market

A market with few government restrictions on how a good or service can be produced or sold.

Circular Flow of Income

A model that illustrates how participants in markets are linked, showing the flow of goods, services, and money.

Law of Increasing Opportunity Costs

As production of one good increases, the opportunity cost of producing an additional unit rises.

Trade-offs

The alternatives that must be given up when making a decision.

Specialization

The focus on producing a limited range of goods to gain greater efficiency.

Incentives

Factors that motivate individuals to perform actions.