Scarcity & Opportunity Cost
The basic economic problem that exists because wants are unlimited while resources are limited.
What is scarcity?
A point located inside a production possibilities curve represents this.
What is unemployment or productive inefficiency?
The producer that can make a good using fewer resources has this advantage.
What is absolute advantage?
The additional satisfaction gained from consuming one more unit of a good.
What is marginal utility?
The branch of economics that studies individual consumers, firms, and specific markets.
What is microeconomics?
The value of the next-best alternative that is given up when a choice is made.
What is opportunity cost?
A point on a PPC represents this type of efficiency.
What is productive efficiency?
The producer with the lower opportunity cost of making a good has this advantage.
What is comparative advantage?
A utility-maximizing consumer compares this ratio across all goods.
What is marginal utility divided by price (MU/P)?
Land, labor, capital, and entrepreneurship are collectively known by this term.
What are the factors of production / economic resources?
If studying for an economics test means giving up two hours of paid work, the forgone wages are this.
What is the opportunity cost of studying?
An improvement in technology will generally cause the PPC to move in this direction.
What is outward?
Maria can make 12 pizzas or 6 salads per hour. Her opportunity cost of one salad is this many pizzas.
What are 2 pizzas?
Good A has MU = 24 and P = $6. Its marginal utility per dollar is this.
What is 4 utils per dollar?
An economic system in which prices and private decisions largely determine resource allocation.
What is a market economy?
A decision should be made when the additional benefit of the action is at least as large as this.
What is the marginal cost?
The usual bowed-out shape of a PPC illustrates this economic principle.
What is increasing opportunity cost?
James can make 8 pizzas or 8 salads per hour, while Maria can make 12 pizzas or 6 salads. This person has the comparative advantage in salads.
Who is James?
Good A has MU/P = 4 and Good B has MU/P = 5. To move toward utility maximization, the consumer should buy more of this good.
What is Good B?
The phrase 'all else equal,' frequently used by economists.
What is ceteris paribus?
A student values attending a concert at $90 and the ticket costs $60. Ignoring other costs, this is the student's economic surplus.
What is $30?
If an economy moves along its PPC toward more capital goods today, this is the likely long-run effect on its PPC.
What is greater future economic growth / a larger outward shift?
For two parties to gain from trade, the terms of trade must fall between these.
What are the two parties' opportunity costs?
Coffee has MU = 36 and P = $6; donuts have MU = 20 and P = $5. The consumer should shift spending toward this item.
What is coffee?
The study of what should be, involving value judgments rather than testable factual claims.
What is normative economics?