Micro Ch 01 | Scarcity, Opportunity Cost, Trade and Models

Scarcity

The condition where resources are limited but wants are unlimited, forcing choices and trade-offs.

Opportunity Cost

The value of the next best alternative that is given up when making a choice.

Trade-Off

The act of giving up one benefit in order to gain another, often due to scarcity.

Resources

Inputs like money, time, and energy that are limited and used to satisfy wants.

Economics

The study of how individuals, businesses, and governments make choices to maximize satisfaction under scarcity.

Markets

Systems or environments where choices and interactions between buyers and sellers occur.

Prioritization

The process of deciding what is most important when faced with scarcity.

Constraints

Limitations or restrictions that affect decision-making, such as time, money, or energy.

Allocation

The process of distributing limited resources among competing uses.

Satisfaction

The fulfillment or happiness derived from making choices under scarcity.

Trade

The exchange of goods, services, or resources between parties to maximize value.

Decision-Making

The process of choosing between alternatives to address scarcity.

Social Programs

Government initiatives aimed at improving societal welfare, often requiring resource allocation.

Innovation

The development of new ideas, products, or methods, often requiring resource investment.

Charitable Foundation

An organization that uses resources to support social causes, often facing scarcity in allocation.

Money Cost

The monetary expense associated with a choice or action.

Incentives

Rewards or penalties that influence decision-making.

Benefits

The advantages or gains from a particular choice or action.

Costs

The disadvantages or losses associated with a choice or action.

Alternatives

The different options available when making a decision.

Smart Choices

Decisions made by weighing costs and benefits to maximize overall value.

Models

Simplified representations used to explain and predict economic behavior.

Rewards

Positive outcomes or benefits that motivate certain choices.

Penalties

Negative outcomes or costs that discourage certain choices.

Value

The importance or worth of something in decision-making.

Decisions

Choices made between alternatives based on costs and benefits.

Experiences

Non-monetary outcomes or events that are foregone in decision-making.

Specialization

Focusing on a specific task or skill to increase efficiency and productivity.

Voluntary Trade

A mutually beneficial exchange where both parties value what they receive more than what they give up.

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than others.

Production Possibilities Frontier (PPF)

A curve showing the maximum combinations of goods or services that can be produced with available resources.

Standard of Living

The level of wealth, comfort, and material goods available to a person or community.

Absolute Advantage

The ability to produce more of a good or service with the same resources compared to others.

Mutual Benefit

A situation where all parties involved in a trade gain value or satisfaction.

Self-Sufficiency

The ability to produce all necessary goods and services independently.

Modern Economies

Economic systems characterized by specialization, trade, and reliance on markets.

Zero-Sum Game

A situation where one party's gain is exactly balanced by another party's loss.

Efficiency

The optimal use of resources to maximize output and minimize waste.

Gains from Trade

The benefits individuals or groups receive from engaging in trade.

Economic Principle

A fundamental concept or rule that guides economic behavior and decision-making.

Economic Models

Simplified representations of the real world used to focus on key economic concepts and interactions.

Circular Flow

A model showing the continuous flow of inputs, outputs, and money between households, businesses, and government.

Households

Owners of economic inputs like labor, natural resources, capital, and entrepreneurial ability.

Businesses

Entities that use inputs to produce goods and services sold in output markets.

Government

The central entity in the circular flow model that sets rules and interacts with households and businesses.

Input Markets

Markets where households sell or rent inputs to businesses in exchange for wages and rewards.

Output Markets

Markets where businesses sell goods and services to households.

Law of Demand

Economic principle stating that quantity demanded decreases as price rises, assuming other factors remain unchanged.

Positive Statements

Statements about facts that can be checked and evaluated as true or false.

Normative Statements

Statements involving value judgments or opinions about what should be.

Simplification

The process of reducing complexity in models to focus on essential elements.

Value Judgments

Opinions or preferences that reflect personal or societal values.

Microeconomics

The study of individual choices made by people, businesses, and governments, and their interactions in markets.

Macroeconomics

The study of the overall performance of the economy, including unemployment, inflation, and government policies.

Marginal Benefits

The additional benefits gained from making one more unit of a choice.

Marginal Costs

The additional costs incurred from making one more unit of a choice.

Implicit Costs

Opportunity costs that are not directly recorded in accounting books, such as time or alternative uses of resources.

Externalities

Costs or benefits of a choice that affect others outside of the decision-maker.

Sunk Costs

Costs that have already been incurred and cannot be recovered, and thus should not affect future decisions.

Inflation

The rate at which the general level of prices for goods and services rises over time.

Unemployment Rates

The percentage of the labor force that is jobless and actively seeking employment.

Government Policies

Decisions made by governments to influence economic outcomes, such as taxes or interest rates.

Additional Benefits

The extra advantages gained from a specific choice or action.

Additional Costs

The extra expenses incurred from a specific choice or action.

Pollution

A negative externality caused by activities that harm the environment.