AP Microeconomics Unit 1 - Comparative Advantage and Trade + Cost Benefit Analysis

Lower Opportunity Cost

Comparative advantage relative to comparison of higher opportunity cost

Specialization

Focus on production of one thing to maximize production; trading has lower OC

PPF Slope

Opportunity Cost

Same Opportunity Cost

No gain from trade

Absolute Advantage

Producing more with the same input as other

Determining Comparative Advantage

Use ratios of total capital / amount needed to produce item

Implicit Cost

The cost associated with the next best alternative that is foregone when a decision is made

Explicit Cost

What is directly spent

Total Cost

Opportunity Cost + cost of thing

Accounting Profit

Difference between total revenue and explicit costs; reflects actual earnings of a business without considering opportunity costs

Economic Profit

Difference between total revenue and total costs, including both explicit and implicit costs, which takes into account the opportunity costs of all resources used in production process; economic profit > accounting profit, negative economic profit irrational

Utility

Measure of usefulness, worth, value, happiness derived from consuming goods and services, which can vary from person to person based on individual preferences and circumstances

Marginal Utility

Gained utility per incremental unit; negative MU indicates taking from utility