economics chapter 2

what is the difference between self interest and selfishness?

self interest is an economic term while selfishness is a cultural term

oftentimes large scale production leads to lower per unit costs.

Economies of Scale

technological change is about figuring out how to get more from existing resources

Innovation

The proposition that the joint output of trading partners will be greatest when each good is produced by the low opportunity cost producer.

Law of comparative advantage

how do specialization and the division of labor increase output?

Specialization permits individuals to take advantage of their existing skills. Specialized workers become more skilled with time. Division of labor allows for the adoption of mass-production technology.

can expand the economy's production possibilities?

advancements in technology

why is trade the key to prosperity?

channels goods toward those who value them the most, and makes it possible for people to produce more as the result of specialization & division of labor, large-scale production processes, and the dissemination of improved products and lower cost production methods.

breaks down the production of a good into a series of tasks performed by different workers

division of labor

what can increase the output of the economy?

improvement of the rules of the economy and working harder and giving up current leisure

why is private ownership a key to prosperity?

it provides people with a strong incentive to take care of things and develop resources in ways that are valued by others.

what is a production possibilities curve

mapping out of all the possiblities of how to do something

refers to the impact of consuming the next unit

marginal analysis

A method of organization that allows for unregulated prices and the decentralized decisions of private property owners to resolve the basic economic problems

market organization

A person who buys and sells, or arranges trades, also reduces transaction costs

middleman

what is the foundation of trade

mutual gain

The highest valued activity sacrificed in making a choice.

opportunity cost

involves the use of collective decision making (government) to decide what, how, and for whom goods and services will be produced

political organization

the right to exclusive use. legal protection against invaders. the right to transfer to another

private property rights

The right to use, control, and obtain benefits from a resource, good, or service.

property rights

the time, effort, and other resources needed to search out, negotiate, and consummate an exchange

transaction cost

how can private property rights get you into trouble?

you are held liable if your property is used to damage someone elses