choice  a selection among alternative goods, services, or actions.
command economy  an economy in which the government determines prices and production; also called a centrally planned economy.
comparative advantage  a situation in which a person or country can produce one good more efficiently than another good in comparison with another person or country.
division of labor  the division of production into various parts in which different groups of workers specialize.
economic interaction  exchanges of goods and services between people.
economics  the study of how people deal with scarcity.
freely determined price  a price that is determined by the individuals and firms interacting in markets.
gains from trade  improvements in income, production, or satisfaction owing to the exchange of goods or services.
government failure  a situation in which the government makes things worse than the market, even though there may be market failure.
incentive  a device that motivates people to take action, usually so as to increase economic efficiency.
increasing opportunity cost  a situation in which producing more of one good requires giving up producing an increasing amount of production of another good.
market  an arrangement by which economic exchanges between people take place.
market economy  an economy characterized by freely determined prices and the free exchange of goods and services in markets.
market failure  any situation in which the market does not lead to an efficient economic outcome and in which there is a potential role for government.
opportunity cost  the value of the next-best forgone alternative that was not chosen because something else was chosen.
production possibilities  alternative combinations of production of various goods that are possible, given the economy’s resources.
production possibilities curve  a curve showing the maximum combinations of production of two goods that are possible, given the economy’s resources.
property rights  rights over the use, sale, and proceeds from a good or resource.
scarcity  the situation in which the quantity of resources is insufficient to meet all wants.