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Micro - Ch. 2

Microeconomics - Ch 2 - Choice in a World of Scarcity

TermDefinition
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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