The Basics
The study of how people, firms, and societies use their scarce productive resources to best satisfy their unlimited material wants.
What is economics?
This exists if a producer can produce more of a good with the same quantity of resources, or the same quantity of goods with fewer resources, than all other producers.
What is absolute advantage?
The next unit or increment of an action.
What is marginal?
A good for which higher income increases demand.
What are normal goods?
Called factors of production, these are commonly grouped into the four categories of labor, physical capital, land or natural resources, and entrepreneurial ability.
What are resources?
A producer has comparative advantage if he can produce a good at lower opportunity cost than ll other producers.
What is comparative advantage?
Production of maximum output for a given level of technology and resources.
Productive efficiency.
When two goods provide essentially the same utility to the consumer.
What are substitute goods?
The imbalance between limited productive resources and unlimited human wants. Because economic resources are scarce, the goods and services a society can produce are also scarce.
What is scarcity.
What is specialization?
This occurs when an economy's production possibilities increase. It can be a result of more resources, better resources, or improvements in technology.
Economic growth.
Exists at the only price where the quantity supplied equals the quantity demanded. Or, it is the only quantity where the price consumers are willing to pay is exactly the price producers are willing to accept.
What is market equilibrium?
Scarce resources imply that individuals, firms, and governments are constantly faced with difficult choices that involve benefits and costs.
Different quantities of goods that an economy can produce with a given amount of scarce resources. Graphically, the trade-off between the production of two goods is portrayed as a production possibility curve or frontier (PPC or PPF).
What are production possibilities?
Making decisions based upon weighing the marginal benefits and costs of that action. The rational decision maker chooses an action if the MB is greater than or equal to MC.
What is marginal analysis?
A good for which higher income decreases demand.
What are inferior goods?
The value of the sacrifice made to pursue a course of action.
Opportunity cost.
A graphical illustration that shows the maximum quantity of one good that can be produced, given the quantity of the other good being produced.
What is the production possibility curve or frontier (PPC or PPF)?
An economic system based upon the fundamentals of private property, freedom, self-interest, and prices.
What is a market economy (capitalism)?
Also known as excess demand, this exists when the quantity demanded exceeds the quantity supplied. The price rises to eliminate this issue.