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Micro - Ch. 2
Microeconomics - Ch 2 - Choice in a World of Scarcity
| Term | Definition |
|---|---|
| allocative efficiency | when the mix of goods being produces represents the mix that society most desires |
| budget constraint | all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set |
| comparative advantage | when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production |
| invisible hand | idea that self-interested behavior by individuals can lead to positive social outcomes |
| law of diminishing marginal utility | as we consume more of a good or service, the utility we get from additional units of the good or service tend to become smaller than what we received from earlier units |
| law of diminishing returns | as additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline |
| marginal analysis | examination of decisions on the margin, meaning a little more or a little less from the status quo |
| normative statement | statement which describes how the world should be |
| opportunity cost | measures cost by what is given up in exchange; measures the value of the foregone alternative |
| opportunity set | all possible combinations of consumption that someone can afford given the process of goods and the individual's income |
| positive statement | statement which describes the world as it is |
| production possibilities frontier (PPF) | a diagram that shows the productively efficient combination of two products that economy can produce given the resources it has available |
| productive efficiency | when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service) |
| sunk costs | costs that are made in the past and cannot be recovered |
| utility | satisfaction, usefulness, or value one obtains from consuming goods and services |
Created by:
Kendall Posey
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