Micro Chap. 2

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  1. Production possibilities Frontier
    • boundary b/w combos of goods that can be produced and those that can't 
    • can't produce #'s outside boundary
  2. Production Efficiency
    produce goods at lowest possible cost, any POINT on graph
  3. Opportunity cost
    • highest valued alternative forgone
    • what do I give up over what do I gain
    • ration 
    • decrease of good a / increase of good b
    • higher opp cost = higher opp cost of production
  4. allocative efficiency
    achieved when goods are provided at lowest costs and in quantities that provide the greatest possible benefit
  5. Marginal Cost
    • opp cost of producing one more unit of it
    • calculated from slope of ppf. Points pass through middle
  6. Preferences
    Likes and dislikes and intensity of those feelings
  7. Marginal Benefit Curve
    • shows relationship b/w marginal benefit from good and quantity consumed of good
    • the more we have of a good, smaller the marginal benefit b/c we won't pay as much for it eg. more pizza.
    • UNRELATED to ppf
  8. Economic Growth
    • expansion of production possibilities
    • increase standard of living 
    • face a tradeoff, more production, more opp cost, reduce consumption
  9. Cost of Economic Growth
    • 2 factors
    • Technological change - development of new goods and better ways of producing goods
    • Capital Accumulation - growth of capital resources (human capital, buildings etc) 
    • This won't eliminate scarcity 
    • goal is produce less consumption goods
  10. Specialization
    produce limited types of goods
  11. Comparative advantage
    • somebody produces at lower opp cost than anyone else
    • compare opp costs
  12. Absolute advantage
    compares production values, someone who is better at almost everything
  13. Decentralized market (4 institutions)
    • 1. Firm
    • 2. Markets
    • 3. Property 
    • 4. Money
    • need these to work
  14. 1. Firm
    hires factors of production, organize factors to produce or sell goods
  15. 2. Markets
    • Trade b/w firms
    • arrangement that enables buyers and sellers to exchange info and do business
    • sometimes not a physical place
  16. 3. Property Rights
    • ownership, use, disposal of anythingn people value
    • real property - land, buildings, durable goods
    • financial property - stocks, bonds, money in bank
    • intellectual property - intangible product of creative effort. Books, music
  17. 4. Money
    • commodity or token that is generally acceptable form of payment
    • makes trading more efficient
Card Set
Micro Chap. 2
Micro, chap 2
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