Microecon. Chapter 2

Production Possibilities Frontier (PPF)

A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

Market

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Free Market

A market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed.

Circular-flow Diagram

A model that illustrates how participnts in markets are linked.

Scarcity

A situation in which unlimited wants exceed the limited resources availiable to fulfill those wants.

Product Markets

Markets for goods - such as computers - and services - such as medical treatment.

Factor Markets

Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.

Entrepreneur

Someone who operates a business, bringing together the factors of production - labor, capital, and natural resources - to produce goods and services.

Comparative Advantage

The ability of an individual, a firm, or a country to produce a good ro service at a lower opportunity cost than competitors.

Absolute Advantage

The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.

Economic Growth

The ability of the economy to increase the production of goods and services.

Trade

The act of buying and selling.

Opportunity Cost

The highest-valued alternative that must be given up to engage in an activity.

Factors of Production

The inputs used to make goods and services.

Property Rights

The rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.