Allocative Efficiency Definition
A condition in which a business or businesses produce the goods and services consumers value more than the cost of producing those goods and services.
Cost-Benefit Analysis Definition
A process of weighing the costs and benefits of a decision in order to make a choice.
Efficient Definition
A combination of goods that is on the productions possibilities frontier; with the given resources, the economy can only make more of one good by making less of another.
Inefficient Definition
A combination of goods that is inside the productions possibilities frontier; it is possible to produce more of at least one good or service using the given resources without decreasing the number of other goods produced.
Law of Increasing Opportunity Costs Definition
As more resources are devoted toward the production of one good, the sacrifice of producing one more unit of the good, or the opportunity cost measured in terms of the production of another good forgone, becomes higher.
Marginal Definition
The addition of one more unit.
Marginal Analysis Definition
A style of decision making that compares the additional benefits of a decision to the additional costs of the decision.
Net Benefits Definition
The benefits that result from a choice minus the costs that accompany the choice.
Normative Economics Definition
A type of economic analysis that uses value judgements to recommend actions and policies that people should take.
Opportunity Cost Definition
The value of the next best alternative option that was not chosen.
Positive Economics Definition
A type of economic analysis that describes economic behavior and the functioning of the economy without making judgements about how people should behave.
Production Possibilities Frontier (PPF) Definition
A graphical description of the economy that shows the maximum amounts of two or more goods a person or group of people can produce given the inputs available. The PPF shows a range of different combinations of efficient production.
Productive Efficiency Definition
A condition in which given resources are used to produce the most possible output; the output combination is on the production possibilities frontier.
Rational Definition
Logical; based on thoughtful analysis. It refers to a decision-making process that compares the benefits and costs of an action.
Self-Interest Definition
Regard for what matters to oneself. It refers to the decision-making process in which people choose the option that maximizes their own net benefits.
Sunk Cost Definition
A cost that is not part of a decision’s opportunity cost; the cost of a choice made in the past.
Unattainable Definition
A combination of goods that is outside the productions possibilities frontier; it is impossible to produce this combination of goods with the given resources.
Absolute Advantage Definition
The ability to produce a good or service using fewer resources than other producers.
Bartering Definition
Trading goods and services for other goods and services.
Comparative Advantage Definition
The ability to produce a good or service at a lower opportunity cost than other producers.
Free Trade Definition
A situation in which the government does not use quotas and tariffs to inhibit international trade.
Law of Comparative Advantage Definition
The law that says a person or nation benefits when producing those goods and services in which they have a comparative advantage and trading those goods and services for other goods and services.
Medium of Exchange Definition
An object that people use to exchange goods and services indirectly.
Money Definition
An object that people use as a medium of exchange, a unit of account, and a store of value.
