Principles of Macroeconomics – Chapter 2 – Flashcards

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capital
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things that are produced and then used in the production of other goods
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factors of production
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inputs into production; resources
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production
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the process that transforms scarce resources into goods and services
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inputs
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resources used in production
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outputs
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goods or services useful to a household
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theory of comparative advantage
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theory that specialization and trading will benefit all parties, even if one is an "absolutely" more efficient producer
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absolute advantage
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ability to produce the same output with fewer resources
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comparative advantage
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ability to produce the same output with lower opportunity cost
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consumer goods
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goods produced for present consumption
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investment
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the process of using resources to produce new capital
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production possibility frontier
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all combinations of goods or services that can be efficiently produced
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output efficiency
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producing what consumers want
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production efficiency
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using all resources in the economy
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marginal rate of transformation (MRT)
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slope of the PPF
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economic growth
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an increase in an economy's total output
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command economy
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central government directly or indirectly sets output targets, prices, or incomes
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laissez-faire economy
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economy in which individuals and units pursue their own self-interest
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market
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institution through which buyers and sellers interact and exchange goods
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consumer sovereignty
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the idea that consumers ultimately dictate what will be produced by choosing what to purchase
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free enterprise
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the ability of individuals to start and operate private businesses
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