Introduction to Economics: Efficiency, Trade, and Growth

Vocabulary flashcards covering core topics from the lecture including efficiency types, absolute vs. comparative advantage, trade specialization, consumption vs. capital trade-offs, and economic growth models.

Productive Efficiency

A state represented by any point on the Production Possibility Curve ($PPC$) where all available resources, physical capital, space, and workers are fully utilized, meaning producing more of one good requires producing less of another.

Production Inefficiency

A state represented by any point inside or below the Production Possibility Curve ($PPC$) where resources are used inefficiently or not fully utilized, allowing an economy to produce more of both goods.

Allocative Efficiency

The single best point on the Production Possibility Curve ($PPC$) from society's point of view where the marginal benefit curve intersects the marginal cost curve ($MB = MC$), incorporating all social costs and benefits.

Absolute Advantage

The ability of an individual, firm, or country to produce more of a good or demonstrate higher overall productivity compared to another producer.

Comparative Advantage

The ability of an individual or country to produce a good or service at a lower opportunity cost than another producer.

Output per Input

A production measurement example where input is held constant (such as $1\,hour$ of time) and the resulting quantities of produced output are measured.

Input per Output

A production measurement example where output is held constant (such as $1\,pizza$) and the required input time or resources are measured, where the lowest number indicates the higher productivity.

Autarky

A situation of no trade where a country or individual consumes only what they produce independently.

Acceptable Term of Trade

An agreed-upon rate of exchange between two trading parties that falls strictly between their respective opportunity costs, ensuring that both parties achieve a net benefit from trade.

Complete Specialization

A production approach where an individual or country allocates all of their resources toward producing only the good in which they possess a comparative advantage.

Partial Specialization

The real-world trade practice where a country shifts production significantly toward goods in which it has a comparative advantage, without completely specializing in producing only one or two goods.

Pareto Improvement

An economic change or trade outcome named after Vilfredo Pareto in which both participating parties gain and are made better off.

Economic Growth

An expansion in production or consumption possibilities—illustrated by an outward shift of the $PPC$—that increases standards of living and helps solve the problem of scarcity.

Capital Good

A physical resource or piece of equipment used in the production process to increase future productive output rather than satisfying immediate consumer wants today.

Consumption Good

A good created for immediate use and personal satisfaction today, representing a trade-off against saving or investing in capital goods for tomorrow.

Per Worker Production Function

An economic model represented by $Q = A \times F(K, L)$ that relates output per unit of labor to capital per worker and technology.

Diminishing Returns

A production state where continuously adding more capital to a fixed amount of labor while holding technology constant yields progressively smaller incremental increases in output.

Long-run Sustainable Economic Growth

Economic growth driven by continuous technological advancements and productivity improvements, allowing an economy to overcome diminishing returns on capital.