Trade and Differing Preferences
What is the term for the exchange of goods, services, or both between parties?
Trade
What is the term for when an individual or firm focuses on a specific aspect of production?
Specialization
What is the term for the value of the goods that are given up to produce something else?
Opportunity Cost
What is scarcity?
The state of being limited or in short supply.
What term refers to the idea that when the price of a good or service increases, the quantity of that good or service demanded decreases?
The Law of Demand
What is the term that refers to the total quantity of a good or service that producers are willing and able to offer to the market at various prices?
Supply
What is a Positive Sum game?
A situation in which both people in an interaction gain something.
What is at least one of the three main empowering elements of specialization that results in increased productivity?
1. Learning by doing
2. Minimizing switching costs
3. The discovery and use of capital
What is comparative advantage?
The gains from trade that come about as a result of our differences in productive capabilities.
What is marginal benefit?
The benefit of one additional unit of a good you consume.
How are increases and decreases of demand (the demand curve) shown on a graph?
Increase of demand is a shift to the right.
Decrease of demand is a shift to the left.
What is the Law of Supply?
An increase in price results in an increase in quantity supplied and vice versa.
What is a Zero Sum Game?
A situation in which one person's gain is exactly balanced by the losses of the other person.
What is the Sowell Quantity?
The idea that the quantity of knowledge that society can use grows with the specialization of production.
How is comparative advantage determined between two people/countries producing two different goods?
It is determined by which ever person/country has a lower opportunity cost.
What is total benefit?
the entire benefit that you receive from all of the units of a good you consume.
What are at least two main shifters of demand?
Income
Population
Preferences
Prices of Substitutes
Prices of Complements
What are at least two main shifters of supply?
Technological innovation
Changes in prices of inputs
Entry or exit of producers
Government Policy
Price changes of Substitutes in Production
Changes of opportunity costs
Why does trade create wealth?
People value things differently, so it allows them to acquire more of what they find to be valuable.
According to Thomas Sowell, what is the main economic advantage of civilization when compared to a more primitive way of living?
In primitive times, everyone must know a great deal of information to survive. Now, we don’t have to understand everything to survive. (Civilization is an enormous device for economizing on knowledge).
What is the main difference between comparative advantage and specialization?
Unlike specialization, comparative advantage does not rely on improvement, since it compares two people/countries at their current level of ability to produce.
What is the Law of Diminishing Marginal Utility/Benefit?
Marginal benefit decreases with each additional unit of a good consumed/produced.
What is consumer surplus?
The extra value consumers receive when they buy a product for less than what they were willing to pay.
What is producer surplus?
The producer’s gain from exchange. It is the difference between what a producer receives and what he or she would have been willing to receive for a good or service.