Econ Chapter Two
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the time, effort, and other resources needed to search out, negotiate, and complete an exchange.
A person who buys and sells goods or services or arranges trades. a middleman reduces transaction costs.
the right to use, conrtol, and obtain the benefits from a good or resource.
property rights that are exclusively held by an owner and protected against invasion by others. private property can be transferred, sold, or mortgaged at the owner's discretion.
Production possibilities curve
a curve that outlines all possible combinations of total output that could be produced, assuming (1) a fixed amount of productive resources, (2) a given amount of technical knowledge, and (3) full and efficient use of those resources. the slope of the curve indicates the amount of one product that must be given up to produce more of the other.
the purchase, construction, or development of resources, including physical assets, such as plants and machinery and human assets, such as better education. invstment expands an economy's resources. the process of investment is sometimes called capital formation.
the technological knowledge available in an economy at any given time. the level of technology determines the amount of output wwe can generate with our limited resources.
the creation of a new product or process, often facilitated by the knowledge of engineering and science
the successful introduction and adoption of a new product or process; the economic application of inventions and marketing techniques.
a person who introduces new products or improved technologies and decides which projects to undertake. a successful entrepreneur's actions will increase the value of resources and expand the size of the economic pie.
the replacement of old products and production methods by innovative new ones that consumers judge to be superior. the process generates economic growth and higher living standards.
Division of labor
a method that breaks down the production of a product into a series of specific tasks, each performed by a different worker.
Law of comparative advantage
A principle that states that individuals, firms, regions, or nations can gain by specializing in the production of goods that they produce cheaply (at a low opportunity cost) and exchanging them for goods they cannot produce cheaply (at a high opportunity cost).
A method of organization in which private parties make their own plans and decisions with the guidance of unregulated market prices. the basic economic questions of consumption, production, and distribution are answered throught these decentralized desicions.
An economic system in which productive reaources are owned privately and goods and reaources are allocated through market prices.
Collective decision making
The method of organization that relies on public-sector decision making (voting, political bargaining, lobbying, and so on) to resolve basic economic questions.
A system of economic organization in which (1) the ownership and control of the basic means of production rest with the state, and (2) resource allocation is determined by centralized planning rather than mmarket forces.
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