Macroeconomics Ch 2
division of labor
a method that breaks down the production of a product into a series of specific tasks, each performed by a different worker
technology
the technological knowledge available in an economy at any given time; the level of technology determines the amount of output we can generate with our limited resources
transaction costs
the time, effort, and other resources needed to search out, negotiate, and complete an exchange
private property rights
property rights that are exclusively held by an owner and protected against invasion by others; private property can be transferred, sold, or mortgaged at the owner's discretion
production possibilities curve
a curve that outlines all possible combinations of total output that could be produced assuming 1) a fixed amount of productive resources, 2) a given amount of technical knowledge, and 3) full and efficient use of those resources
market organization
a method of organization in which private parties make their own plans and decisions with the guidance of unregulated market prices
entreprenuer
a person who introduces new products or improved technologies and decides which projects to undertake; successful entreprenuer will increase the value of resources and expand the size of the economic pie
law of comparative advantage
a principle that states that individuals, firms, regions, or nations can gain by specializing in the production of goods that they produce cheaply (low opportunity cost) and exchanging them for goods they cannot produce cheaply (high opportunity cost)
socialism
a system of economic organization in which 1) the ownership and control of the basic means of production rest with the state and 2) resource allocation is determined by centralized planning rather than market forces
capitalism
an economic system in which productive resources are owned privately and goods and resources are allocated through market prices
middlemen
people who buy and sell goods or services or arrange trades; a middleman reduces transaction costs
invention
the creation of a new product or process, often facilitated by the knowledge of engineering and science
collective decision-making
the method of organization that relies on public-sector decision-making (voting, lobbying, political bargaining) to resolve basic economic questions
investment
the purchase, construction, or development of resources (plants, machinery, human assets such as education); investment expands an economy's resources; sometimes called capital formation
creative destruction
the replacement of old products and production methods by innovative new ones that consumers judge to be superior
property rights
the rights to use, control, and obtain the benefits from a good or resource
innovation
the successful introduction and adoption of a new product or process; the economic application of inventions and marketing techniques
