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AP Micro Chapter 2
Key terms for Chapter 2: Choice in a World of Scarcity
| Term | Definition |
|---|---|
| Absolute Advantage | The ability to produce more of a good or service than another country. |
| Comparative Advantage | The ability to produce a good or service at a lower opportunity cost than another country. |
| Invisible Hand | Promotes public interest through a market system where the primary motivation is self-interest. |
| Law of Diminishing Marginal Utility | When a person receives more of a good, the additional utility from each additional unit of the good decreases. |
| Law of Diminishing Returns | As we add additional increments of resources to producing a good or service, the marginal benefit from those additional increments will decline. |
| Law of Increasing Cost | The more of a good that is produced, the greater the opportunity cost of producing the next unit of that good is. |
| Marginal Analysis | Making decisions based upon weighing the marginal benefits and costs of that action. |
| Marginal Cost (MC) | The additional cost incurred from the consumption of the next unit of a good or service. |
| Marginal Benefit (MB) | The additional benefit received from the consumption of the next unit of a good or service. |
| Normative Statement | A statement that contains a value judgment ("should, have to") and cannot be verified by scientific methods. |
| Opportunity Cost | The benefit of the next best alternative you could have but gave up in order to gain something else. |
| Positive Statement | A statement containing something that can be proved. |
| Production Possibilities Frontier (PPF) | A graphical representation of opportunity cost. |
| Productive Efficiency | The production of maximum output for a given level of technology and resources (All points on PPF are productively efficient). |
| Allocative Efficiency | The production of the combination of goods and services that provides the most net benefit to society (Only one point on PPF is allocatively efficient). |
| Sunk Costs | Costs that were made in the past and cannot be recovered. |
| Trade-Offs | When something is given up in order to get another #ThankYouScarcity |
| Utility | A term used to determine the worth or value of a good or service. |
Created by:
LoreleiBurnett
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