economist might say that people choose not to obtain a college degree because they may have to borrow money to

attend college, and the interest they have to pay on that loan in the future will affect their decisions today. Also, it

could be that some people have a preference for current consumption over future consumption, so they choose to

work now at a lower salary and consume now, rather than postponing that consumption until after they graduate

college.

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2 • Key Terms 43

Key Terms

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
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