Economic Foundations

What is Ceteris Paribus?

Latin for all things held constant

Ex: If you don't eat, you will become hungry
-May be exceptions
*Commas, Exceptions, Etc.

Definition of Scarcity

Not enough stuff for human desire

What is and what isn't scarce.

Everything is scarce, Everything is finite, but human desire is infinite

Simplest Term of Scarcity

Study of choice in a scarce environment

What are goods and services?

Goods are tangible

Services are actions a person took to get you a good

What are the four types of resources?

Land, Capital, Labor, and Entrepreneurship

What is the definition of Economy?

Coordinates the production and distribution of goods and services.

What is a market?

A collection of buyers and sellers

What is the definition of production?

Creation through the use of resources

What is the definition of an Incentive?

Motivates a person to an action or decision

True or False: Can incentives be positive and negative?

True

Definition of Opportunity Cost

The value of the next best option to any decision

What is a PPC Curve?

The maximum quantity of good that can be produced for each possible quantity of another good.

What is the opportunity cost on a PPC?

The distance between the two points on either the x or y axis.

What is the Law of Increasing Opportunity Cost?

The opportunity cost of a good rises as more of the good is produced

-Why graphs are curved
- Resources are NOT perfectly interchangeable

When is a PPC efficient?

There is no opportunity to make something better without making someone else worse off

When is a PPC ineffective?

Resources aren't utilized to their max

What is growth?

Increase in productivity over time

-Trading usually

What are absolute Advantages?

A country can produce more of a good than any other country

What is Comparative Advantage?

When a country can produce a good at a lower opportunity cost then its trading partner

Why is specialization and trade so amazing?

This allows an economy to utilize goods and services beyond its Production Possibilities

Why is Division of Labor so amazing?

By having each worker specialize in one tiny piece of the process, the factory is able to produce exponentially more stuff.

What is Marginal Benefit?

The additional benefit of doing something one more time

What is Marginal Cost?

The additional cost of doing something one more time

IF the Marginal Benefit is (...) to or (...) than the Marginal Cost: Do It!

Equal to or Greater

What does the Law of Diminishing Marginal Returns state?

The Marginal Benefit will decrease over time when an additional amount of an identical input is used.

What is Marginal Utility?

This is the amount of satisfaction or usefulness that is derived from something.

What is Game Theory?

The modeling of interaction between competing actors

What is Nash's Equilibrium?

A player has no incentive to change their strategy even after considering their opponents choice