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Opportunity cost
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The value of the best alternative forgone when an item or activity is chosen.
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Sunk cost
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A cost that has already been incurred, cannot be recovered, and thus is irrelevant for present and future economic decisions.
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Law of comparative advantage
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The individual, firm, region, or country with the lowest opportunity cost of producing a particular good should specialize in that good.
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Absolute advantage
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The ability to make something using fewer resources than other producers use.
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Comparative advantage
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The ability to make something at a lower opportunity cost than other producers face.
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Barter
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The direct exchange of one product for another without using money.
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Division of labor
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Breaking down the production of a good into separate tasks.
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Specialization of labor
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Focusing work effort on a particular product or a single task.
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Production possibilities frontier (PPF)
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A curve showing alternative combinations of goods that can be produced when available resources are used efficiently; a boundary line between inefficient and unattainable combinations.
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Efficiency
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The condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another; getting the most from available resources.
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Law of increasing opportunity cost
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To produce more of one good, a successively larger amount of the other good must be sacrificed.
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Economic growth
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An increase in the economy's ability to produce goods and services; reflected by an outward shift of the economy's production possibilities frontier.
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Economic system
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The set of mechanisms and institutions that resolve the what, how, and for whom questions.
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Pure capitalism
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An economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets.
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Private property rights
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An owner's right to use, rent, or sell resources or property.
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Pure command system
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An economic system characterized by the public ownership of resources and centralized planning.
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Mixed system
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An economic system characterized by the private ownership of some resources and the public ownership of other resources; some markets are regulated by government.
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