Principles of economics + GDP + Supply and Deamnd

Created for midterm 9/23

Trade off

What you have to do or use/ not do or use in order to get what you want

Sunk cost

The cost of something that is not recoverable and has already been spent. Cost of building the swimming pool after it’s built.

Scarcity

When the demand is more than the supply at no price

What two things must people face in a trade off?

Efficiency and equality.

Efficiency

The greatest benefits from resources

Equality

Greatest distribution of benefits and resources.

Marginal benefit

The cost of something at that moment, changes hour by hour. Additional cost on top of the average cost.

Opportunity cost

The cost of the next best option forsaken.

Production possibility frontier

The maximum amount of goods produced possible.

Comparative advantage

Lower opportunity cost of a certain good.

Absolute advantage

More productivity of a certain good.

Specialization

The good that you have a comparative advantage in.

How do you change the absolute advantage?

Autarky

The state of no trade.

Consumption Possibility frontier

The most amount of goods that you can consume.

How do you change your CPF?

Is GDP a good measure of economic wellbeing?

Income approach

Calculation of GDP base on how much income everyone in the economy has.

Expenditure approach

Calculation of GDP based on the spending/ consumption of everyone in the economy.

Adam Smith’s “invisible hand”

The idea that the collective free market decisions will guide the economy to desireable outcomes.

Gros domestic product

The market value of all FINAL goods and services produced within an economy within a period of time.

Final goods

Goods that are in their final finished form, (ie car, iphone).