Economics for Life: Scarcity, Trade, and Models

Vocabulary flashcards covering key concepts from scarcity, opportunity cost, trade, PPF, gains from trade, economic thinking, and the micro/macro framework.

Scarcity

The condition in which wants exceed resources (money, time, energy), requiring people to make choices.

Opportunity Cost

The value of the best alternative forgone when a choice is made.

Trade-off

A sacrifice required to obtain something else due to scarcity.

Incentives

Rewards or penalties that influence decisions; positive incentives encourage and negative incentives deter.

Absolute Advantage

The ability to produce a good with lower absolute cost or more output using the same resources than another producer.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than others, justifying specialization and trade.

Gains from Trade

Mutual benefits that arise when parties specialize according to comparative advantage and exchange.

Production Possibilities Frontier (PPF)

A curve showing the maximum feasible combinations of two goods given current resources and technology; indicates trade-offs and efficiency.

Specialization

Focusing resources on producing goods with a comparative advantage to improve overall production.

Mutually Beneficial Gains from Trade

Both parties can be better off after trade than before, due to specialization and exchange.

Circular-Flow Model

A simplified diagram of the economy showing households, firms, and government interacting in input and output markets with money and goods flows.

Input Markets

Markets for factors of production (labor, land, capital, entrepreneurship) where households supply resources and firms demand them.

Output Markets

Markets for final goods and services where firms supply and households demand.

Factors of Production / Inputs

Labor, natural resources, capital equipment, and entrepreneurial ability used to produce goods and services.

Microeconomics

The study of individual choices by households and firms and how these choices interact in markets.

Macroeconomics

The study of economy-wide performance and aggregates, such as unemployment, inflation, and growth.

Positive Statements

Statements about what is; testable and verifiable with evidence.

Normative Statements

Statements about what ought to be; involve judgments and value-based conclusions.

Implicit Costs

Non-monetary opportunity costs of a decision (the value of foregone alternatives not paid in money).

Externalities

Costs or benefits of a decision that affect others and are not reflected in market prices.

Marginal Benefit

The additional benefit received from one more unit of a good or activity.

Marginal Cost

The additional cost incurred from producing or consuming one more unit.

Marginal Analysis

Evaluating whether the marginal benefits exceed marginal costs when making choices.

Economic Model

A simplified representation of reality that highlights important factors to analyze relationships and outcomes.

Three Keys Model to Smart Choices

A framework: count all benefits and costs (including implicit costs and externalities) and choose only when benefits exceed costs.