Unit 1

factor market

market in which firms purchase the factors of production from households and households receive factor payments from the firms

product market

the market in which households purchase the goods and services that firms produce

constant cost possibilities curve

...

decreasing cost possibilities curve

...

increasing cost possibilities curve

...

zero cost possibilities curve

...

implicit cost

The value of something sacrificed when no direct payment is made; , a nonmonetary opportunity cost

specialization

Workers concentrate on producing those goods and services for which they have a comparative advantage

ceteris paribus

a Latin phrase that means "all other things held constant"

explicit cost

a cost that involves spending money

production possibilities curve

a graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good; graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

trade-offs

all the alternatives that we give up whenever we choose one course of action over another

capital goods

buildings, machinery, tools, and other goods that provide productive services over a period of time.

circular flow model

economic model of the economy illustrating the interdependent relationship between the sectors of the economy (households, firms, government, financial institutions & overseas); , The flow of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households and from households to firms.

consumer goods

goods (as food or clothing) intended for direct use or consumption; , household products, clothing, and other goods people buy to use for themselves

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

absolute advantage

the ability to produce a good using fewer inputs than another producer

guns or butter

a phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods

opportunity cost

the highest-valued alternative that must be given up to engage in an activity; value of the next best alternative given up for the alternative that was chosen