unit 1 flashcards micro

Scarcity

The condition that arises because wants exceed the limited resources available to satisfy them.

Opportunity Cost

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

Trade-off

All the alternatives that must be given up when one choice is made over another.

Factors of Production

Resources used to produce goods and services: Land, Labor, Capital (physical & human), Entrepreneurship.

Economic System

A method used by a society to allocate resources and distribute goods and services.

Market Economy

An economy where decisions are made by individuals and businesses based on supply and demand.

Command Economy

An economy where the government makes all economic decisions.

Mixed Economy

A blend of market and command economy features.

Incentives

Factors that motivate individuals and firms to make decisions in their best interest.

Production Possibilities Curve (PPC)

A graph showing all possible combinations of two goods that can be produced given fixed resources and technology.

Efficiency

Using resources in such a way as to maximize the production of goods and services.

Underutilization

When an economy is not using all of its resources efficiently (inside the PPC).

Economic Growth

An increase in output or PPC shifting outward.

Absolute Advantage

The ability to produce more of a good with the same resources than another producer.

Comparative Advantage

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

Specialization

Focusing resources on the production of one or a few goods to gain efficiency.

Terms of Trade

The rate at which one good can be exchanged for another between two parties.

Cost-Benefit Analysis

A process of comparing the benefits and costs of a decision.

Marginal Analysis

Decision-making that compares additional benefits and additional costs.

Marginal Benefit (MB)

The additional satisfaction gained from consuming one more unit of a good or service.

Marginal Cost (MC)

The additional cost of producing one more unit of a good or service.

Utility

Satisfaction or benefit received from consuming a good or service.

Law of Diminishing Marginal Utility

As a person consumes more of a good, the additional satisfaction from each additional unit decreases.

Consumer Choice

The decision-making process of individuals in allocating their income among various goods and services.

Rational Behavior

The assumption that individuals make decisions that maximize their utility.