Economics Chapter Two

What is the marginal benefits curve?

It is a curve that shows the relationship between the marginal benefit from a good and the quantity of that good consumed.

How is marginal benefit measured?

It is measured by the most people are willing to pay for the good or service.

What is economic growth?

It is the expansion of production capacity.

What is production efficiency?

It is when we produce goods and services at the lowest possible cost.

What is technological change?

Technological change is the development of new goods and of better ways of producing goods and services.

What are the four elements of decentralised markets?

1. Firms 2. Markets 3. Property rights 4. Money

What causes economic growth?

1. Technological change 2. Capital accumulation

What is comparative advantage?

A person has a comparative advantage over another in the producing a good if he or she can produce a given quantity of that good at a lower opportunity cost than the other person.

What is absolute advantage?

A person has an absolute advantage over another in producing a good if he or she can produce a given quantity of that good using fewer resources than the other person.

What is capital accumulation?

Capital accumulation is the growth of capital resources, including human capital.

What is dynamic comparative advantage?

Dynamic comparative advantage is a comparative advantage that a person (or country) has acquired by specialising in an activity and becoming the lowest-cost producer as a result of learning-by-doing.

What is the opportunity cost ratio?

Opportunity cost is a ratio - the decrease in the quantity produced of one good divided by the increase in the quantity produced of another good as we move along the PPF.

What is the marginal benefit of a good?

The marginal benefit from a good or service is the benefit received from consuming one more unit of it.

What is the marginal cost of a good?

The marginal cost of a good is the opportunity cost of producing one more unit of it.

What is the principle of decreasing marginal benefit?

The more we have of any good or service, the smaller is its marginal benefit and the less we are willing to pay for an additional unit of it.

What is opportunity cost?

The opportunity cost of an action is the highest-valued alternative forgone.

What is the production possibilities frontier (PPF)?

The production possibilities frontier is the boundary between those combinations of goods and services that can be produced and those that cannot.

What are property rights?

The social arrangements that govern the ownership, use and disposal of anything that people value are called property rights.

What are preferences?

They are a description of a person's likes and dislikes.

What is the allocation efficiency?

When goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit, we have achieved allocation efficiency.

At what point is allocation efficiency achieved?

When the marginal benefit is equal to the marginal cost.