Chapter 5: Basic Economic Concepts

occurs because unlimited desire for goods and services exceeds limited ability to produce them due to constraints on time and resources

capital, labor, entrepreneurship, natural resources

(also referred to as inputs or factors of production)

physical and mental effort of people

knowledge and skill from training and experience

ability to identify opportunities and organize production, and willingness to accept risk to pursue rewards

study of how societies allocate scarce resources among competing ends

describes the way things

way things should be

value of the best alternative sacrificed compared to what actually takes place

illustrates the opportunity cost of making one good rather than another one

all resources are used productively

Greater absolute value of slope = greater opportunity cost

products for sale in a retail or consumer market used directly by consumers

things purchased to produce other goods

particular area where a person concentrates in or has expertise in

allows people to develop expertise in certain tasks, where practice improves performance

when a country can produce a good using fewer resources per unit of output compared to another country

when a country can produce a good at a lower opportunity cost compared to another country

With trade, countries can have a consumption possibilities frontier that exceeds its own production possibilities frontier

comparing value of cost vs. benefits

those who place the highest relative value on goods should receive them

ratio of marginal utility for two goods