EC test 1 review - ECON 201 EXAM 1 STUDY GUIDE CHAPTER 2...

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ECON 201 EXAM 1 STUDY GUIDE CHAPTER 2 Production Possibilities Frontier (PPF): the boundary between those combinations of good and services that can be produced and those that cannot Production Efficiency: if we cannot produce more of one good without producing less of some other good Marginal Cost: of a good is the opportunity cost of producing one more unit of it Marginal Benefit: from a good or service is the benefit received from consuming one more unit of it Used to describe preferences Marginal Benefit Curve: shows the relationship between the marginal benefit from a good and the quantity of that good consumed 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 - principle of decreasing marginal benefit Allocative Efficiency: when we cannot produce more of any good without giving up some other good that we value more highly , producing at the point on the PPF that we prefer above all other points Economic Growth: increases our standard of living but it doesn't overcome scarcity and avoid opportunity costs Technological Change: development of new goods and of better ways of producing good and services Capital Accumulation: growth of capital resources , including human capital Market: any arrangement that enables buyers and sellers to get information and to do business with each other Production Possibilities and Opportunity Cost The production possibilities frontier, PPF, is the boundary between production levels that are attainable and those that are not attainable when all the availible resources are used to their limit Production efficiency occurs at points on the PPF Along the PPF, the opportunity cost of producing more of one good is the amount of the other good that must be given up The opportunity cost of all goods increases as the production of the good increases Using Resources Efficiently The marginal cost of a good is the opportunity cost of producing one more unit The marginal benefit from a good is the maximum amount of another good that a person is willing to forgo to obtain more of the first good The marginal benefit of a good decreases as the amount of the good availible increases Recourses are used efficiently when marginal cost of each good is equal to its marginal benefit Economic Growth Economic growth, which is the expansion of production possibilites, results from the capital accumulation and technological change The opportunity cost of economic growth is forgone current consumption
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CHAPTER 3 Competitive Market: a market that has many buyers and sellers, so no single buyer or seller can influence the price Relative Price: the ratio of one price to another, a relative price is an opportunity cost
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EC test 1 review - ECON 201 EXAM 1 STUDY GUIDE CHAPTER 2...

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