Basic Economic Concepts -- Unit 1.1 - 1.6 MicroE

opportunity cost

The loss of potential gain from other alternatives when one alternative is chosen.

factors of production

The resources used to produce goods and services, typically classified into four categories: land, labor, capital, and entrepreneurship.

constant opportunity cost

The situation in which the opportunity cost of producing a good remains the same regardless of the quantity produced.

increasing opportunity cost

The situation in which the opportunity cost of producing additional units of a good rises as more of that good is produced.

production possibilities curve

A graph that shows the maximum combinations of goods and services that can be produced in an economy, given fixed resources and technology.

comparative advantage

The ability of an individual or group to carry out a particular economic activity (such as production) at a lower opportunity cost than another individual or group.

absolute advantage

The ability of an individual, firm, or country to produce more of a good or service than another individual, firm, or country with the same amount of resources.

specialization

The process of focusing on a given area of production or trade to improve efficiency and output.

explicit cost

The direct monetary expenses incurred by a business, such as wages, rent, and materials, that are easily quantifiable.

implicit cost

The indirect costs of a business, which represent the opportunity cost of using resources that could have been employed elsewhere, such as the owner's time and capital.

marginal cost

The cost of producing one additional unit of a good or service, calculated as the change in total cost divided by the change in quantity produced.

marginal utility per dollar

The additional satisfaction or benefit gained from spending one more dollar on a good or service, calculated by dividing the marginal utility of the good by its price.

utility

The satisfaction or benefit derived from consuming a good or service.

utils

A theoretical unit of measurement used to represent the satisfaction or utility gained from consuming goods and services.

diminishing marginal utility

The principle stating that as a person consumes more units of a good or service, the additional satisfaction (utility) gained from each additional unit decreases.

marginal benefit

The additional benefit received from consuming one more unit of a good or service, which is considered in decision-making processes to determine the optimal level of consumption.

budget constraint

represents the limit on the consumption bundles that a consumer can afford given their income and the prices of goods and services.

terms of trade

The ratio at which one good can be exchanged for another, typically expressed in terms of the price of one good in relation to another.