1. Scarcity & Trade-Offs

Scarcity

Resources are limited, but human wants are unlimited.

Trade-off

Giving up one thing in order to get another.

Opportunity cost

The value of the next-best alternative you give up.

Incentive

Something that encourages or discourages a person to take an action.

Efficiency

Getting the greatest possible benefit from available resources.

Equity

Fairness in how resources or outcomes are distributed.

Factors of production

The resources used to produce goods and services: land, labor, capital, and entrepreneurship.

Absolute advantage

Being able to produce more of a good using the same resources.

Comparative advantage

Being able to produce a good at a lower opportunity cost.

Autarky

A situation where a country does not trade with other countries.

Gains from trade

The benefits that result when people or countries specialize and trade.

Production possibilities frontier (PPF)

A graph showing the combinations of two goods an economy can produce using available resources and technology.

Increasing opportunity cost

The opportunity cost of producing more of a good increases as production of that good increases.

Positive statement

A statement describing how things are or what is.

Normative statement

A statement about how things should be.

Specialization

Focusing resources on producing a particular good or service.