Unit 1 Study Guide: Economics Basics

Vocabulary-style flashcards covering the fundamental concepts of economics, opportunity costs, production models, and market sectors as outlined in the Unit 1 Study Guide.

Scarcity

Unlimited wants but limited resources.

Microeconomics

The study of small economics or individual segments of the economy.

Macroeconomics

The study of the economy as a whole.

Rational Decision Making

The process of weighing marginal benefit and marginal cost, where a choice is made if $MB \geq MC$.

Trade-off

Alternatives we give up when making a choice.

Opportunity Cost

The most desirable alternative given up when you make a choice.

Utility

The satisfaction, usefulness, or value obtained from consuming a good or service.

Marginal

In economics, this refers to additional or "one more" unit of something.

Allocate

To distribute or set aside resources for a particular purpose.

Price

The amount of money a buyer pays to acquire a good or service.

Cost

The amount of money or resources a seller must spend to produce a good or service.

Investment

The money spent by businesses on capital goods to improve or increase production.

Capital Goods

Goods created for indirect consumption that are used to produce other goods and services.

Consumer Goods

Goods produced for direct use by individuals for consumption.

Factors of Production

The four resource categories used to create all goods and services: Land, Labor, Capital, and Entrepreneurship.

Production Possibilities Curve (PPC)

A model used to show the trade-offs and opportunity costs between the production of two different goods.

Constant Opportunity Cost

A situation where resources are easily adaptable between producing two goods, resulting in a straight-line PPC.

Law of Increasing Opportunity Cost

As you produce more of any good, the opportunity cost (forgone production of another good) will increase, resulting in a bowed-out PPC.

Resource Market

The part of the economy where households sell their factors of production to businesses.

Product Market

The part of the economy where businesses sell finished goods and services to households.

Household Sector

Members of the economy who own all of the factors of production and serve as the consumers of goods and services.

Business Sector

Members of the economy who use resources to produce goods and services to sell in the product market.