Fundamental Economics: Marginal Analysis, Optimization, and Core Questions

Vocabulary flashcards covering marginal analysis, optimization, and the core questions of economics as discussed in the video notes.

Marginal Cost

The increase in total cost that results from producing one more unit of a good.

Marginal Benefit

The additional benefit or utility gained from consuming one more unit of a good.

Total Cost of Production

The sum of all costs incurred to produce a given quantity of output.

Total Benefit

The total satisfaction or utility obtained from consuming a given quantity of output.

Optimal Quantity

The quantity at which marginal benefit equals marginal cost, maximizing net benefit.

Marginal Analysis

Decision-making by comparing incremental costs and incremental benefits.

Golden Rule of Maximization

Maximize net benefit by setting marginal benefit equal to marginal cost.

Efficiency

Using resources in a way that maximizes output or net benefit, given scarcity.

Resource Limitation / Scarcity

The condition that resources are finite, forcing trade-offs and choices.

Three Fundamental Economic Questions

What to produce, how to produce, and for whom to produce.

What to Produce

Deciding which goods and services to allocate limited resources toward producing.

How to Produce

Choosing the methods or technology to use in creating goods and services.

For Whom to Produce / Allocation

Deciding how goods and services are distributed among people.

Goods and Services / Output / Products

Different terms used for the items produced in an economy; interchangeable in context.

Allocation of Limited Resources

Distributing scarce resources among competing uses to maximize outcomes.

Positive Analysis

Economic analysis based on facts and testable statements; objective.

Normative Analysis

Economic analysis involving value judgments about what ought to be.

Incentives

Factors that motivate individuals to change behavior, such as prices or taxes.

Gains from Specialization and Exchange

Benefits from individuals or regions focusing on their strengths and trading.

GDP (Gross Domestic Product)

The total market value of all final goods and services produced domestically in a period.

Inflation

A sustained rise in the overall price level of goods and services.

Deflation

A sustained fall in the overall price level of goods and services.