question
_____ creates wealth.
answer
Trade
question
Trade
answer
exchange to gain what people value
question
Voluntary
exchange
exchange
answer
Involves exchange
of unequally valued goods
of unequally valued goods
question
opportunity cost
answer
the value of the next-best alternative when a decision is made; it's what is given up
question
Efficiency
answer
compares the ratio of the value of the output to the value of the input.
question
Increased efficiency
answer
leads to lower production costs.
question
Efficiency=
answer
Value of Output
__________________
Value of Input
__________________
Value of Input
question
Production Possibilities Frontier (PPF)
answer
illustrates maximum combinations of products that can be produced using a given set of resources and talent.
question
Absolute advantage
answer
Ability to make something using fewer resources than other producers use
question
Comparative advantage
answer
Ability to make something at a lower opportunity cost than other producers face
question
Specialization is a synonym for
answer
"following one's comparative advantage"
question
Law of Comparative Advantage
answer
producers specialize so that they can expand their possibilities (wealth) by trading for something that is more costly to produce on their own
question
Middlemen's comparative advantage is
answer
to generate quality information at a low cost
question
To enhance wealth, people pursue their _____ _____.
answer
comparative advantage
question
Comparative advantage
answer
is discovered through market exchanges of property rights
question
Market specialization / Division of labor:
answer
creates the conditions for economic growth
question
Rule of law / Private property rights:
answer
-allows freedom of exchange
-provides incentives to specialize in activities of comparative advantage
-provides incentives to specialize in activities of comparative advantage
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