Principles of Macroeconomics – Chapter 2

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things that are produced and then used in the production of other goods
factors of production
inputs into production; resources
the process that transforms scarce resources into goods and services
resources used in production
goods or services useful to a household
theory of comparative advantage
theory that specialization and trading will benefit all parties, even if one is an “absolutely” more efficient producer
absolute advantage
ability to produce the same output with fewer resources
comparative advantage
ability to produce the same output with lower opportunity cost
consumer goods
goods produced for present consumption
the process of using resources to produce new capital
production possibility frontier
all combinations of goods or services that can be efficiently produced
output efficiency
producing what consumers want
production efficiency
using all resources in the economy
marginal rate of transformation (MRT)
slope of the PPF
economic growth
an increase in an economy’s total output
command economy
central government directly or indirectly sets output targets, prices, or incomes
laissez-faire economy
economy in which individuals and units pursue their own self-interest
institution through which buyers and sellers interact and exchange goods
consumer sovereignty
the idea that consumers ultimately dictate what will be produced by choosing what to purchase
free enterprise
the ability of individuals to start and operate private businesses
Categories: Macroeconomics