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Scarcity
Limited resources to satisfy unlimited wants.
Opportunity Cost
The value of the next-best alternative forgone when a choice is made.
Trade-offs
The sacrifices made when choosing one option over another.
individual Scarcity
Limited time and money.
Firm
Business organization seeking profit through sale of goods and services.
Firm Scarcity
Limited land, labor, and capital.
PPF
Production Possibilities Frontier
What is the PPF?
maximum combinations of two goods that an economy can produce with its limited resources and technology
What are the three assumptions for a PPF?
Fixed resources, fixed technology, two goods
What does a bowed outward PPF mean?
Increasing opportunity cost as production of one good increases
What does a linear PPF mean?
Constant opportunity cost
What do Points on the PPF mean?
Efficient use of resources
What do Points inside the PPF mean?
Inefficient use of resources
What do Points outside the PPF mean?
Unattainable with current resources and technology
What does an outward shift in the PPF mean?
Economic growth due to increased resources or technological advancements
What does an inward shift in the PPF mean?
Economic decline due to decreased resources or technological regression
What does a biased shift in the PPF mean?
One good is affected more than the other due to a specific resource change
What is comparative advantage?
The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than another producer
What is absolute advantage?
The ability to produce more of a good or service than another producer using the same amount of resources
What is specialization?
Focusing on the production of a specific good or service in which one has a comparative advantage
How does trade increase consumption?
Specialization and trading allows individuals, firms, and countries to consume more than they could otherwise produce
How does trade increase efficiency?
Specialization is better productively
How does trade stimulate economic growth?
Through the expansion of markets and promotion of innovation
What is an economic system?
A system of production, resource management, and goods/services distribution
What are the four components of property rights?
Right to use, earn income, and transfer a good. Right to enforce property rights
What is capitalism?
System based on the private ownership of resources and goods
What is market-based capitalism?
Households supply firm-demanded inputs (land, labor capital), free flow between households and firms
What is socialism?
A planned economy where the government owns and controls resources, goods, and allocates both
What is marginal analysis?
The analysis of the additional costs and benefits associated with a specific decision
What is cost-benefit analysis?
Comparing the additional cost (marginal cost) of an action with the additional benefit (marginal benefit)
