Examine the content of the selection and define five economic terms/concepts that are used and/or inferred. Only terms/concepts/theories from the textbook may be used. Number your terms/concepts (1, 2, 3,...), then follow with the explanation.

Transcribed Image Text:

allocative efficiency when the mix of goods produced represents the mix that society most desires budget constraint all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set comparative advantage when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production invisible hand Adam Smith's concept that individuals' self-interested behavior can lead to positive social outcomes law of diminishing marginal utility as we consume more of a good or service, the utility we get from additional units of the good or service tends to become smaller than what we received from earlier units law of diminishing returns as we add additional increments of resources to producing a good or service, the marginal benefit from those additional increments will decline marginal analysis examination of decisions on the margin, meaning a little more or a little less from the status quo normative statement statement which describes how the world should be opportunity cost measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative opportunity set all possible combinations of consumption that someone can afford given the prices of goods and the individual's income positive statement statement which describes the world as it is production possibilities frontier (PPF) a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available. productive efficiency when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service) sunk costs utility costs that we make in the past that we cannot recover satisfaction, usefulness, or value one obtains from consuming goods and services (Ctrl) allocative efficiency when the mix of goods produced represents the mix that society most desires budget constraint all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set comparative advantage when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production invisible hand Adam Smith's concept that individuals' self-interested behavior can lead to positive social outcomes law of diminishing marginal utility as we consume more of a good or service, the utility we get from additional units of the good or service tends to become smaller than what we received from earlier units law of diminishing returns as we add additional increments of resources to producing a good or service, the marginal benefit from those additional increments will decline marginal analysis examination of decisions on the margin, meaning a little more or a little less from the status quo normative statement statement which describes how the world should be opportunity cost measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative opportunity set all possible combinations of consumption that someone can afford given the prices of goods and the individual's income positive statement statement which describes the world as it is production possibilities frontier (PPF) a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available. productive efficiency when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service) sunk costs utility costs that we make in the past that we cannot recover satisfaction, usefulness, or value one obtains from consuming goods and services (Ctrl)