Thinking Like an Economist & Comparative Advantage

Vocabulary flashcards covering core economics concepts from scarcity to comparative advantage.

Scarcity

The fundamental condition in which resources are limited relative to wants, forcing trade-offs in production and consumption.

Trade-offs

The concept that choosing one option requires giving up another due to limited resources.

Microeconomics

The branch of economics that studies individual agents such as consumers, firms, and households and their decisions.

Macroeconomics

The branch of economics that analyzes the economy as a whole, including inflation, unemployment, and GDP.

Econometrics

The use of data and statistical methods to estimate economic relationships and test theories.

Opportunity Cost

The value of the next-best alternative forgone when a choice is made.

Sunk costs

Costs that have already been incurred and cannot be recovered; they should be ignored in current decision making.

Explicit costs

Direct monetary payments for inputs, such as rent, wages, and materials.

Implicit costs

The opportunity costs of using resources owned by the firm, such as foregone wages or rent.

Economic profit

Total revenue minus all costs, including both explicit and implicit costs.

Accounting profit

Total revenue minus explicit costs only.

Rational choice

The assumption that agents weigh costs and benefits to maximize net benefits.

Utility

The satisfaction or happiness derived from consuming goods and services.

Marginal utility

The additional utility gained from consuming one more unit of a good.

Marginal analysis

Evaluating whether the extra benefits justify the extra costs of a choice.

Marginal cost

The increase in total cost from producing one more unit of output.

Marginal benefit

The additional benefit obtained from producing one more unit.

Net benefits

Total benefits minus total costs of a choice; the value that is maximized when choosing the optimal quantity.

Production decisions

Firm choices about how much to produce based on marginal analysis to maximize profits.

Optimal quantity

The output level that maximizes net benefits (where marginal benefit equals marginal cost).

Comparative advantage

The ability to produce a good at a lower opportunity cost than others, enabling gains from trade.

Specialization

Focusing production on a subset of goods to increase efficiency.

Division of labor

Breaking production into specialized tasks to boost productivity.

International trade

The exchange of goods and services across borders, driven by comparative advantage.