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Drizzle
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Allocative efficiency
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal befit to society equal to the marginal cost of producing it.
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Centrally planned economy
An economy in which the government decides how economic resources will be allocated.
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Economic model
A simplified version of reality used to analyze real-world economic situations.
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Economic variable
Something measurable that can have different values, such as the incomes of doctors.
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Marginal analysis
Analysis that involves comparing marginal benefits and marginal costs.
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Market economy
An economy in which the decisions of households and firms interacting in markets allocate economic resources.
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Mixed economy
An economy in which most economic decisions result form the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
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Normative analysis
Analysis concerned with what ought to be.
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Opportunity cost
The highest-valued alternative that must be given up to engage in an activity.
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Positive analysis
Analysis concerned with what is.
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Productive efficiency
A situation in which a good or service is produced at the lowest possible cost.
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Trade-off
The idea that, because of scarcity, producing more of one good or service means producing less of another good or service.
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Voluntary exchange
A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction.
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