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 costs that we make in the past that we cannot recover

utility satisfaction, usefulness, or value one obtains from consuming goods and services

Key Concepts and Summary

2.1 How Individuals Make Choices Based on Their Budget Constraint
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