Econ Notes
Economics Chapter 2
Chapter 2
* Opportunity cost is a ratio. It is the decrease in the quantity produced of one good divided by the increase in the quantity produced of another good as we move along the production possibilities frontier. * The outward-bowed shape of the PPF reflects increasing opportunity cost. The PPF is bowed outward because resources are not all equally productive in all activities. * When goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit, we have achieved allocative efficiency.
To make decentralized coordination work, four complementary social institutions that have evolved over many centuries are needed. They are:
-Firms
-Markets
-Property Rights
-Money
Production Possibilities Frontier (PPF): Is the boundary between those combinations of goods and services that can be produced and those that cannot.
Production Efficiency: If we produce goods and services at the lowest possible cost.
Preferences: Are a description of a person’s likes dislikes.
Marginal Benefit: From a good or service is the benefit received from consuming one more unit of it.
Marginal Benefit Curve: Which is a curve that shows the relationship between the marginal benefit from a good and the quantity consumed of that good.
Economic Growth: Increases our standard of living, but it doesn’t over-come scarcity and avoid opportunity cost.
Technological Change: The development of new goods and of better ways of producing goods and services.
Capital Accumulation: Is the growth of capital resources, including human capital.
Comparative Advantage: A person has a comparative advantage in an activity if that person can perform the activity at a lower opportunity cost than anyone else.
Absolute Advantage: Involves comparing productivities – production per hour – whereas comparative advantage involves comparing opportunity costs.
Learning-by-Doing:
Chapter 2
* Opportunity cost is a ratio. It is the decrease in the quantity produced of one good divided by the increase in the quantity produced of another good as we move along the production possibilities frontier. * The outward-bowed shape of the PPF reflects increasing opportunity cost. The PPF is bowed outward because resources are not all equally productive in all activities. * When goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit, we have achieved allocative efficiency.
To make decentralized coordination work, four complementary social institutions that have evolved over many centuries are needed. They are:
-Firms
-Markets
-Property Rights
-Money
Production Possibilities Frontier (PPF): Is the boundary between those combinations of goods and services that can be produced and those that cannot.
Production Efficiency: If we produce goods and services at the lowest possible cost.
Preferences: Are a description of a person’s likes dislikes.
Marginal Benefit: From a good or service is the benefit received from consuming one more unit of it.
Marginal Benefit Curve: Which is a curve that shows the relationship between the marginal benefit from a good and the quantity consumed of that good.
Economic Growth: Increases our standard of living, but it doesn’t over-come scarcity and avoid opportunity cost.
Technological Change: The development of new goods and of better ways of producing goods and services.
Capital Accumulation: Is the growth of capital resources, including human capital.
Comparative Advantage: A person has a comparative advantage in an activity if that person can perform the activity at a lower opportunity cost than anyone else.
Absolute Advantage: Involves comparing productivities – production per hour – whereas comparative advantage involves comparing opportunity costs.
Learning-by-Doing: