Microeconomics Exam #1

Scarcity

Exists when there is less of a good freely available than consumers would like/demand

Opportunity Cost

Is the whole value of benefit that is foregone by choosing one activity over another.

Positive Economics

A branch of economy that relies on factual data rather than value judgements.

Normative Economics

Branch of economics that expresses value judgments, opinions, and ideological beliefs rather than analyzing facts.

All scare goods have a….?

Cost

Marginal

Minimal or marginal thinking looks at what happens when you add or subtract just one extra unit of something, “one more hour of sleep.”

Market Economy

An economic system where production, distribution, and prices of goods and services are guided by the forces of supply and demand.

Command Economy

An economic system where a central government makes all decisions about the production, pricing, and distribution of goods and services

Microeconomics

Macroeconomics

Adam Smith

“Wealth of Nations,”

Necessary Conditions for a Market

The two conditions necessary for a market to exist?

Buyers and Sellers

Comparative Advantage

an economic principle stating that an individual, firm, or country can mutually benefit from trade by producing goods or services at a lower opportunity cost than their trading partners

Absolute Advantage

the ability of a person, company, or country to produce a specific good or service more efficiently, using fewer resources or a lower absolute cost per unit than its competitors

Law of diminishing marginal returns

PPF

Production Possibilities Frontier

What shifts the PPF outward

Increase in technology, Increase in resources available, increase in trade