Micro-Econ Unit 1

Scarcity

not enough resources for everyone to have what they want

Scarcity must be

limited, desirable, and have multiple uses

Interdependence

We trade with each other because scarcity exists

Land Resources

all resources that come from the earth

Labor/ Human Resources

all human work

Capital Resources

all man-made resources

Physical Capital

man-made tools, items used to make other products

Human Capital

education and training (NOT work)

Entrepreneurship

risk taking, business owning resource

Rival Product

Resources are used by other businesses to create other products, creating competition. ie. potatos

Non-Rival Product

Used by more than one business or individual without being depleted. ie. Data

Trade Offs

Everything to give up when you make a decision. ie. everything else

Opportunity Cost

Best alternative given up. ie. New Balances

Production Possibilities Curve

PPC

PPC

Models production choices for an individual or a society given a set of resources

efficient

operating on the curve

inefficient

under the curve

not possible

outside the curve

constant marginal opportunity cost

Even amount of resources given up for both product x and y. x=y/ straight line

Increasing marginal opportunity cost

Unequal amount of resources needed to make product x and y. give up more of good x each time you produce an additional unit of good y

Positive Curve Shift

effects of improved technology

Negative Curve Shift

effects of losing population

Marginal Opportunity Formula

change in the quantity of product lost (over)/ change in the quantity gained

3 basic question

What, How, and for Whom?

Command

Government decides what will be produced and who will use it, government owns means, (North Korea)

Traditional

long-standing cultural customs and societal structures, community owns means, (Nomadic herders)

Market

Buyers and sellers decide what will be acceptable practice in the economy, businesses and individuals own the means, (US)

Mixed

Both market and command, business and individuals with some government ownership, (All Real World Economies))

Marginal Benefit

benefit created by producing one more item

Marginal Cost

Cost generated by producing one more item

Marginal Benefit

What is gained from one more of a unit produced

Total Benefit

Total money received from an action

Marginal Cost

cost assumed by one more being produced (variable cost)

Total Cost

fixed + variable costs

Fixed Cost

cost that does not change (rent)

Variable cost

cost that changes based on how many units are produced

Diminishing Marginal Utility

consumers get less satisfied the more they do something or purchase something. You’re not going to be as refreshed after 100 cans of diet coke