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