Micro 1.1-1.7 Macro 1.1-1.3

scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

characteristics of things that are not scarce

more of it than people want, negative price, non-rival

characteristics of things that are scarce

less of it than people want, positive price, opportunity cost

4 factors of production

land, labor, capital, entrepreneurship

allocating scarce resources involves

trade-offs

positive economics

focuses on facts and cause-and-effect relationships

normative economics

The part of economics involving value judgments about what the economy should be like

3 questions on economic systems

What to produce? How to produce? For whom to produce?

market economy

Economic decisions are made by individuals or the open market.

command economy

An economic system in which the government controls a country's economy.

production possibilities curve

a graph that shows alternative ways to use an economy's scarce resources

productive efficiency

a situation in which a good or service is produced at the lowest possible cost

changes in PPC

When the economy grows and all other things remain constant, we can produce more

Absolute advantage

the ability to produce more goods with fixed resources

comparative advantage

the ability to produce a good at a lower opportunity cost

it-over formula

opportunity cost of 1 A = A/B

other-over formula

opportunity cost of 1 A = B/A

mutually beneficial terms of trade

will be between opportunity costs

effects of trade and specialization

countries can consume beyond their PPC

opportunity cost

the value of the next best alternative not chosen

rational choice

total benefit > total cost

explicit costs

costs that require a firm to spend money

implicit costs

opportunity costs or lost earnings from a choice

total cost

implicit and explicit costs

total net benefit

total benefit - total cost

Marignal

change in total

marginal benefit

the extra benefit of adding one unit

marginal cost

the cost of producing one more unit of a good

Benefit maximizing rule

MB >= MC

Diminishing marginal utility

Decreasing satisfaction or usefulness as additional units of a product are acquired

utility

satisfaction gained by consumers when consuming a good/service

maximizing combination

MUA / PA = MUB / PB