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Economics
study of scarcity and choice
Microeconomics
the part of economics concerned with single factors and the effects of individual decisions.
Firm
a business organization that produces and sells goods or services to make a profit
Household
a group of people who live together and share resources, such as income and consumption
Trade-off
give up something to get something else
Individual choice
decisions made by individuals about what to do/not do
Resources (4)
Land- natural resources
Labor- the effort of workers
Capital- all manufactured resources (factory, chainsaw, cash, education)
Entrepreneurship- risk taking, innovation, organization
Scarcity
-not enough stuff to satisfy all of society
-all resources are scarce (all that can be sold)
-everyone wants more than is available
Marginal Analysis
study of cost/benefits of doing a little more of an activity vs. a little less
Marginal Benefit
gain of doing something once more
Marginal Cost
cost of doing something once more
Opportunity Cost
what you must give up to get something compared to next best alternative (utility)
Utility
value, what something is worth (measured in utils)
Positive Economics
economics that uses objective data and facts
Normative Economics
economics that focuses on valuing judgement and opinion
3 Basic Questions every economy has to answer
What goods and services will be produced?
How will these goods and services be produced?
Who will receive the goods and services?
Traditional Economy
how things are done based on tradition (hunter gatherers)
Market Economy
kinda capitalist, no central power but many sellers and consumers
Command Economy
factors of production are publicly owned and central authority makes decisions
Mixed Economy
combines parts of traditional, market, command
Incentive
rewards or punishments that motivate particular choices
Property Rights
establish ownership and grant individuals the right to trade goods and services with each other
Production Possibility Curve
helps understand efficiency, opportunity cost, economic growth
Model
Simplified version of reality, help study effects of one change
Other Things Equal Assumption
all other relevant factors in a model remain unchanged
Efficient
no way of making things better without making things worse for someone
Increasing Opportunity Cost
as you continue to increase production of one good, the opportunity cost of producing that next unit increases
ceteris paribus
all other things being unchanged or constant
Constant Opportunity Cost
a situation where the opportunity cost remains unchanged as more units of a particular good are produced
Economic Growth
increase in max amount of goods/services an economy can produce
Technology
technical means for producing goods/services
Productive Efficiency
produces as much as possible
Allocative Efficiency
all products are consumed/used
Trade
people provide goods and services in exchange for goods and services
Specialization
each person specializes in the task they are good at
Comparative Advantage
producing good or service if that person’s opportunity cost is lowest among possible
Absolute Advantage
individual can produce more of good/service given same time and resources
Terms of Trade
The rate at which one good can be exchanged for another
International Trade
the exchange of goods and services between countries, which can include imports and exports
Rational Agents
consumers, producers, others who behave rationally and make optimal decisions
Sunk Cost
cost that has already been incurred and is nonrecoverable. A sunk cost should be ignore in decisions
Explicit Cost
paid for with money
Implicit Cost
paid for with time and missed opportunities
Marginal Utility
changes in total utility generated by consuming one additional unit of that good or service
Marginal Utility Curve
shows how marginal utility depends on quantity of a good or service consumed
Principle of Diminishing Marginal Utility
each successive unit of good/service adds less to total utility than does previous unit
Budget Constraint
limits consumer consumption bundle to no more than income
Budget Line (BL)
shows consumption value of consumer spending all income
Optimal Consumption Bundle
bundle that maximizes consumer’s total utility given budget constraints
Optimal Consumption Rule
in order to maximize utility, a consumer must equate the marginal utility per dollar spent on each good and service in the consumption bundle
Note 
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