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Ag Econ
Chapter 2
| Term/Question | Definition/Answer |
|---|---|
| Budget Constraint | all combinations of goods afforded when all income spent within the boundary of the opportunity set |
| What does a budget constraint do? | A budget constraint reflects the disposable income of a household |
| AFNR | Ag; Food, Natural Resources |
| Opportunity Set | possible combinations afforded given prices and individuals income |
| Budget = | P1 x Q1 + P2 x Q2 |
| Opportunity Cost | what one must give up in order to obtain what one desires |
| What are some aspects of opportunity cost? | cost of one item lost as opposed to consuming another; value of the next best alternative every choice has opportuniy cost |
| Marginal Analysis | examine benefits/costs chosing more/less of good |
| Utility | satisfaction, usefulness, value one obtains consuming goods/services |
| Law of Diminishing Marginal Utility | person receiving more goods, additional (marginal utility) |
| Sunk Costs | occurred in past and can't recover; lesson learned from past error and to change future choices |
| Production Possibilities Frontier (PPF) | diagram that shows productively efficient combinations of 2 products economy can produce given resources available |
| slope = | opportunity cost |
| diminishing marginal utility = | more specific case of diminishing return |
| Law of Diminishing Returns | additional increments of resources producing good/service added, marginal benefit from addition increment will decline |
| Budget Constraint vs PPF | Budget Constraint has a straight line; slope is relative to prices of goods, usually fixed, so slope doesn't change; |
| PPF vs Budget Constraint | PPF has an absence of a specific #; exact amount of resources in imaginary - the econ don't know |
| Why does the PPF have a different slope compared to budget constraint? | PPF has a curve shape because the Law of Diminishing Return's slope is different at various points |
| Productive efficiency | impossible to produce more of good without decreasing quantity produced of another |
| Allocative Efficiency | when mix of goods produced represents mix society most desires |
| Comparative Advantage | country can produce good @ lower cost than another |
| Absolute Advantage | country can produce more of good |
Created by:
horktera
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