A simplified version of reality used to analyze real-world economic situations.
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macroeconomics
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
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microeconomics
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
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marginal analysis
Analysis that involves comparing marginal benefits and marginal costs
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opportunity cost
The highest valued alternative that must be given up to engage in an activity
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scarcity
A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
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trade off
The idea that because of scarcity, producing more of one good or service means producing less of another good or service.
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circular flow model
A model that illustrates how participants in markets are linked.
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comparative advantage
The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
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production possibilities frontier
A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
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Market
A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
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Product Market
A market for goodsāsuch as computersāor servicesāsuch as medical treatment.
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Factor Market
A market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.
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Factors of Production
The inputs used to make goods and services.
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supply
The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.
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demand
The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease
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Market Equilibrium
A situation in which quantity demanded equals quantity supplied.
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Competitive Market Equilibrium
A market equilibrium with many buyers and many sellers.
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Surplus
A situation in which the quantity supplied is greater than the quantity demanded.
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