Opportunity cost- Week 1

Limited resource allocation

Resources (natural & human) to produce various goods & services to consume them

Unlimited resource allocation

Human wants/ desire to consume

Macroeconomics

Study of an economy as a whole (country, region etc) → GNP, inflation, unemployment, fiscal and monetary policy, etc

Microeconomics

Study of a mechanism (called market mechanism) that allocates resources in a market/ among markets

Market mechanism

A set of means (place of transaction, method of communication to exchange information etc.) by which producers/ firms and consumers/ households trade goods and services

Economic theory

The abstraction/ simplification of reality tthat attempts to explain causal relationship

Economic model

A representation of theory, often in graphs and equations, to gain insight into the theory and the reality

Rational decisions

Decisions made based on logical reasoning and weighing of costs and benefits to achieve the best outcome. Goal oriented behaviour. Consumers aim to maximise utility whilst producers aim to make profit.

Opportunity cost

The value of the best alternative forgone (that you decide to let go)

Comparative advantage

A country has this advantage if it can produce the good at a cheaper opportunity cost (measured in terms of the other good) than that of the other country