Chapter 1: What's in Economics for You? Scarcity, Opportunity Cost, Trade, and Models

Vocabulary practice flashcards covering fundamental economic concepts from Chapter 1, including scarcity, opportunity costs, gains from trade, economic models, and microeconomics versus macroeconomics.

Scarcity

The problem that arises from our limited money, time, and energy.

Economics

How individuals, businesses, and governments make the best possible choices to get what they want, and how those choices interact in markets.

Opportunity Cost

The cost of the best alternative given up.

Incentives

Rewards and penalties for choices.

Production Possibilities Frontier (PPF)

The maximum combinations of products or services that can be produced with existing inputs.

Absolute Advantage

The ability to produce a product or service at a lower absolute cost than another producer.

Comparative Advantage

The ability to produce a product or service at a lower opportunity cost than another producer.

Opportunity Cost Formula

$$\text{Opportunity cost} = \frac{\text{Give Up}}{\text{Get}}$$

Economic Model

A simplified representation of the real world, focusing attention on what's important for understanding.

Inputs

The productive resources—labour, natural resources, capital equipment, and entrepreneurial ability—used to produce products and services.

Input Markets

Markets where businesses buy the inputs they need to produce products and services, and households are the sellers.

Output Markets

Markets where businesses sell their products and services, and households are the buyers.

Circular Flow of Economic Life

An economic model that shows how households, businesses, and governments interact in input and output markets.

Positive Statements

Statements about what is; they can be evaluated as true or false by checking the facts.

Normative Statements

Statements about what you believe should be; they involve value judgments and cannot be factually checked.

Natural Experiments

Empirical studies arising from a quirk of history that randomly subjects some people but not others to a policy.

Microeconomics

The analysis of choices that individuals in households, individual businesses, and governments make, and how those choices interact in markets.

Macroeconomics

The analysis of the performance of the whole Canadian economy and global economy; the combined outcomes of all individual microeconomic choices.

Marginal Benefits

Additional benefits from the next choice.

Marginal Opportunity Costs

Additional opportunity costs from the next choice.

Implicit Costs

Opportunity costs of investing your own money or time.

Negative Externalities

Costs that affect others external to a choice or a trade.

Positive Externalities

Benefits that affect others external to a choice or a trade.