Session:2 Choice in a World of Scarcity
Key Terms
Principles of Macroeconomics 3e | Leadership Development – Micro-Learning Session
Rice University 2020 | Michael Laverty, Colorado State University Global Chris Littel, North Carolina State University| https://openstax.org/details/books/principles-macroeconomics-3e
- allocative efficiency
- when the mix of goods produced represents the mix that society most desires
- budget constraint
- all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set
- comparative advantage
- when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production
- invisible hand
- Adam Smith’s concept that individuals’ self-interested behavior can lead to positive social outcomes
- law of diminishing marginal utility
- as we consume more of a good or service, the utility we get from additional units of the good or service tends to become smaller than what we received from earlier units
- law of diminishing returns
- as we add additional increments of resources to producing a good or service, the marginal benefit from those additional increments will decline
- marginal analysis
- examination of decisions on the margin, meaning a little more or a little less from the status quo
- normative statement
- statement which describes how the world should be
- opportunity cost
- measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative
- opportunity set
- all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income
- positive statement
- statement which describes the world as it is
- production possibilities frontier (PPF)
- a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available.
- productive efficiency
- when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)
- sunk costs
- costs that we make in the past that we cannot recover
- utility
- satisfaction, usefulness, or value one obtains from consuming goods and services