Economic Notes Chapter 2

Economic Notes Chapter 2 - Principle of Voluntary Exchange...

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Economic Notes Chapter 2 Principle of Opportunity Cost – The opportunity cost of something is what you sacrifice to get it Principle – a self-evident truth that most people readily understand and accept Opportunity cost – what you sacrifice to get something Production possibilities curve – shows the possible combinations of products that an economy can produce The Marginal Principle – Increase the level of activity as long as its marginal benefit exceeds its marginal cost Marginal benefit – additional benefit resulting from a small increase in some activity Marginal cost – additional cost resulting from a small increase in some activity
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Unformatted text preview: Principle of Voluntary Exchange A voluntary exchange between two people makes both people better off Principle of Diminishing Returns Suppose that output is produced with two or more inputs, and we increase one input while holding the other inputs fixed. Beyond some point called the point of diminishing marginal returns output will increase at a decreasing rate. The Real-Nominal Principle What matters to people is the real value of money or income its purchasing power not the face value of money or income...
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This note was uploaded on 11/11/2010 for the course ECN 211 taught by Professor Durant during the Fall '10 term at Mesa CC.

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