Principles
The fundamental economic problem that stems for the limited nature of scarce resources.
What is scarcity?
Any point located strictly inside a PPF represents this level of output.
What is inefficient?
The ability to produce a good using fewer inputs (or producing a greater total output) than another producer.
What is absolute advantage?
A change in the price of a good itself causes this visual change on its demand curve.
What is a movement along the curve (change in quantity demanded)?
The point where quantity demanded equals the quantity supplied.
What is market equilibrium?
What you give up to get the next viable option.
What is opportunity cost?
The Latin phrase meaning "holding all other variables constant" when examining a single change in a model.
What is Ceteris Paribus?
The ability to produce a good at a lower opportunity cost than another producer.
What is comparative advantage?
If consumer income increases and the demand for a good decreases, this change is classified as this type.
What is an inferior good?
When the market price is set above the equilibrium price, quantity supplied exceeds quantity demanded, resulting in this market condition.
What is a surplus?
Rational decision-makers take an action if, and only if, the marginal benefit of that action exceeds this.
A bowed-out PPF implies increasing opportunity costs, whereas a straight-line PPF implies this type of oppurtunity cost.
What is constant?
Gains from international trade arise primarily from differences in this concept rather than absolute capacity.
What is comparative advantage or opportunity cost?
An increase in the price of tea causes the demand curve for coffee to shift in this direction.
What is to the right?
When quantity demanded exceeds quantity supplied due to a price set below equilibrium.
What is a shortage?
Something, such as a reward or punishment, that induces a person to act.
What is an incentive?
If a country experiences a technological breakthrough that improves locomotive manufacturing efficiency, the PPF shift on the personal vehicle axis will do this.
What is stay unchanged?
If Producer A gives up 3 balls to make 1 train, and Producer B gives up 5 balls to make 1 train, this producer has the comparative advantage in trains.
Who is Producer A.
An increase in the price of raw materials or wages will shift the supply curve in this direction.
What is to the left?
What is ambiguous (indeterminate)?
The tradeoff between getting the maximum benefits from scarce resources versus distributing economic prosperity uniformly among society's members.
What is efficiency versus equality?
Factors that are controlled within an economic model versus factors outside the model that are beyond our control.
What are endogenous vs exogeneous factors?
When nations specialize according to comparative advantage, total global production increases, enlarging this metaphorical concept.
What is the world's economic pie?
If home sellers expect housing prices to drop significantly in the near future, current market supply will shift in this direction.
What is to the right?
The three sequential steps used to analyze a market event on the equilibrium.
1. Decide if the event shifts supply, demand, or both
2. Decide the direction of the shift (left or right)
3. Draw the diagram to see the change in price and quantity