Ch. 2: Economic Tools and Economic Systems

These flashcards cover key vocabulary and concepts from the lecture on economic tools and systems, focusing on definitions and core principles.

Opportunity Cost

The value of the best alternative forgone when an item or activity is chosen.

Production Possibilities Frontier (PPF)

A curve showing alternative combinations of goods that can be produced when available resources are used efficiently.

Sunk Cost

A cost that has already been incurred and cannot be recovered, hence irrelevant for present and future economic decisions.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than other producers face.

Absolute Advantage

The ability to make something using fewer resources than other producers.

Specialization

Focusing work effort on a particular product or a single task, allowing for increased productivity.

Barter

Direct exchange of one product for another without using money.

Economic Growth

An increase in the economy’s ability to produce goods and services, causing an outward shift of the economy’s PPF.

Pure Capitalism

An economic system characterized by private ownership of resources and use of prices to coordinate economic activity in unregulated markets.

Pure Command System

An economic system characterized by public ownership of resources and centralized planning.

Mixed System

An economic system characterized by private ownership of some resources and public ownership of others, with some markets regulated by government.

Efficiency

The condition that exists when resources cannot be reallocated to increase the production of one good without decreasing the production of another.