Chapter 2

Physical capital

All manufactured resources, including buildings, equipment, machines, and improvements to land that are used for production.

Goods

All things from which individuals derive satisfaction or happiness.

A production possibilities curve that is bowed outward​ (from the​ origin) represents the concept that...

...production of additional units of one good requires that increasing quantities of the other good be given up. When moving along a bowed outward​ PPC, we find that production of additional units of one good require​ ever-increasing reductions in the other good.

Production possibilities curve (PPC)

A curve representing all possible combinations of maximum Outputs that could be produced, assuming a fixed amount of productive resources of a given quality. Points inside the PPC are always attainable but imply that more of one or both goods could be produced with available resources and technology. This represents an inefficient use of those resources.

A linear​ (straight line) production possibility curve depicts...

A linear​ (straight line) production possibility curve depicts a constant​ trade-off between the two goods displayed on its axes. This means that the opportunity cost of obtaining an additional unit of one good requires constant reductions of the other good.

Discuss the idea of efficiency and inefficiency

A simple commonsense definition of efficiency is getting the most out of what we have. When we are not doing so that is inefficiency.

Define and understand of the concept of scarcity.

A situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants at a zero price.

Scarcity

A situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants at a zero price. It is the mismatch between unlimited wants and limited resources that defines the problem of scarcity. The clash between unlimited wants and limited resources​ (scarcity) implies that people must make choices regarding the use of resources. When one particular use for a resource is​ chosen, a​ trade-off occurs since production of the next best alternative is foregone.

Production

Any activity that results in the conversion of resources into products that can be used in consumption. The resources used in production are called factors of production, and some economists use the terms resources and factors of production interchangeably. Production is defined as the conversion of resources into desired goods and services.

Inefficient point

Any point below the production possibilities curve, at which the use of resources is not generating the maximum possible output.

Economic goods

Goods that are scarce, for which the quantity demanded exceeds the quantity supplied at a zero price. For many goods the desired quantity exceeds the quantity available at a zero price. These goods are therefore scarce and are called economic goods.

Explain and distinguish between the factors of production.

Land, labor, physical capital, human capital, and entrepreneurship.

Services

Mental or physical labor or assistance purchased by consumers. Examples are the assistance of physicians, lawyers, dentists, repair personnel, house cleaners, educators, retailers, and wholesalers; items purchased or used by consumers that do not have physical characteristics.

Comparative advantage vs. Absolute advantage

Only comparative advantage, not absolute advantage, matters in determining how you will allocate your time. Comparative advantage determines your choice because it involves the highest-valued alternative in a decision about time allocation.

Labor

Productive contributions of humans who work. Labor is the human resource, which includes productive contributions made by individuals who work, such as Web page designers, iPad applications creators, and professional football players.

Discuss economic growth and the trade-off between consumption and capital goods.

TBD...

Discuss specialization, division of labor and trade between nations.

TBD...

Draw a graph a production possibilities curve.

TBD...

Explain absolute and comparative advantage.

TBD...

Comparative advantage

The ability to produce a good or service at a lower opportunity cost compared to other producers. The ability to perform an activity at a lower opportunity cost.

Absolute advantage

The ability to produce more units of a good or service using a given quantity of labor or resource inputs. Equivalently, the ability to produce the same quantity of a good or service using fewer units of labor or resource inputs.

Human capital

The accumulated training and education of workers.

Efficiency

The case in which a given level of inputs is used to produce the maximum output possible. Alternatively, the situation in which a given output is produced at minimum cost. Here we are discussing productive efficiency. An economy is productively efficient whenever it is producing the maximum output with given technology and resources.

Entrepreneurship

The component of human resources that performs the functions of raising capital; organizing, managing, and assembling other factors of production; making basic business policy decisions; and taking risks.

Law of increasing additional cost

The fact that the opportunity cost of additional units of a good generally increases as people attempt to produce more of that good. This accounts for the bowed-out shape of the production possibilities curve. When people take more resources and apply them to the production of any specific good, the opportunity cost increases for each additional unit produced.

Explain the idea of opportunity cost.

The highest-valued, next-best alternative that must be sacrificed to obtain something or to satisfy a want. Your opportunity cost is the next-highest ranked alternative, not all alternatives.

Opportunity cost

The highest-valued, next-best alternative that must be sacrificed to obtain something or to satisfy a want. Your opportunity cost is the next-highest ranked alternative, not all alternatives.

Land

The natural resources that are available from nature, Land as a resource includes location, original fertility and mineral deposits, topography, climate, water, and vegetation. Land encompasses all the nonhuman gifts of nature, including timber, water, fish, minerals, and the original fertility of land. It is often called the natural resource.

Specialization

The organization of economic activity so that what each person (or region) consumes is not identical to what that person (or region) produces. An individual may specialize, for example, in law or medicine. A nation may specialize in the production of coffee, e-book readers, or digital cameras.

Division of labor

The segregation of resources into different specific tasks. For instance, one automobile worker puts on bumpers, another doors, and so on.

Technology

The total pool of applied knowledge concerning how goods and services can be produced.

Consumption

The use of goods and services for personal satisfaction.

Explain the difference between wants and needs and the concept of economic goods.

Wants are not the same as needs. Humans have unlimited wants. Economic goods are a subset of all goods—they are scarce goods, about which we must constantly make decisions regarding their best use. By definition, the desired quantity of an economic good exceeds the amount that is available at a zero price.

When nations specialize in an area of comparative advantage and then trade with the rest of the world, the average standard of living in the world rises. In effect, international trade allows the world to move from inside the global production possibilities curve toward the curve itself; thereby improving worldwide economic efficiency;

When nations specialize in an area of comparative advantage and then trade with the rest of the world, the average standard of living in the world rises. In effect, international trade allows the world to move from inside the global production possibilities curve toward the curve itself; thereby improving worldwide economic efficiency;

Explain the idea of increasing additional cost.

When people take more resources and apply them to the production of any specific good, the opportunity cost increases for each additional unit produced. In general, the more specialized the resources, the more bowed the production possibilities curve.