Principles of Microeconomics - Scarcity, Trade, and Economic Models

Vocabulary practice flashcards covering fundamental economic principles, decision-making, trade concepts, graphing basics, and production possibilities from Chapters 1 through 3.

Scarcity

The state of having limited resources to satisfy unlimited human wants.

Choice

The act of selecting among alternatives, which serves as the logical consequence of scarcity.

Economics

The study of the choices individuals make given the presence of scarcity, and how human beings coordinate their wants and desires given decision-making mechanisms, social customs, and political realities.

Resources

Inputs used to produce goods and services, categorised into human resources, physical resources (capital), natural resources, and human ingenuity/entrepreneurial ability.

Capital (Physical Resources)

Man-made productive inputs such as tools, machines, and buildings used to produce goods and services.

Opportunity Cost

The highest valued option forgone, or the best alternative activity sacrificed when making a choice.

Rational People

Individuals who systematically and purposefully do the best they can to achieve their objectives.

Marginal Changes

Small incremental adjustments made to an existing plan of action.

Incentives

Factors that modify the costs and benefits of an action, encouraging or discouraging specific behavior.

Market Economy

An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.

Invisible Hand

Adam Smith's concept that households and firms interacting in markets act as if guided by an invisible force that leads to desirable market outcomes.

Property Rights

The legal ability of an individual to own and exercise control over scarce resources.

Market Failure

A situation in which a market on its own fails to produce an efficient allocation of resources.

Externality

The impact of one person's actions on the well-being of an uncompensated bystander.

Market Power

The ability of a single economic actor or small group of actors to exert substantial influence on market prices.

Productivity

The quantity of goods and services produced from each unit of labor input.

Inflation

An increase in the overall level of prices in the economy, typically driven by growth in the quantity of money.

Business Cycle

Fluctuations in economic activity, such as employment and production, over time.

Positive Economics

The branch of economics studying "what is," consisting of objective statements that can be proven true or false.

Normative Economics

The branch of economics studying "what ought to be," consisting of subjective statements reflecting values that cannot be proven true or false.

Fallacy of Composition

The mistaken belief that what is true for the individual (or part) is necessarily true for the group (or whole).

Linear Graph Equation

An equation expressed in the form $y = mx + b$, where $m$ represents the slope of the line and $b$ represents the vertical intercept.

Direct Relationship

A relationship between two variables where both move in the same direction: when $X$ goes up, $Y$ goes up, and when $X$ goes down, $Y$ goes down.

Inverse Relationship

A relationship between two variables where they move in opposite directions: when $X$ goes up, $Y$ goes down, and when $X$ goes down, $Y$ goes up.

Production Possibility Frontier (PPF)

A graph showing the combinations of two goods that an economy can produce given a fixed level of technology and resources being used efficiently at a fixed point in time.

PPF Resource Efficiency Classification

Classification of points on a PPF diagram where points on the frontier (such as $B$ and $C$) are efficient, points inside (such as $A$) are inefficient, and points outside (such as $D$) are unattainable with current resources and technology.

Principle of Increasing Opportunity Cost

The principle stating that opportunity costs increase the more production is concentrated on an activity, requiring ever-increasing quantities of another good to be sacrificed.

Division of Labor

The practice of breaking down the production of a commodity into a series of distinct tasks performed by different workers.

Absolute Advantage

The ability of an individual or country to produce more of a good using available resources compared to another producer.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than another producer.

Law of Comparative Advantage

The principle that the total joint output of trading partners will be maximized when each good is produced by the low opportunity cost producer.

Outsourcing

The relocation of production tasks once done domestically to foreign countries where labor costs present a comparative advantage.

Globalization

The increasing integration of economies, cultures, and institutions across the world.